Today’s video update is the first in an ongoing series of quick thoughts. This is what’s on our mind; what’s on yours?

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Many market participants will play for rebounds in the day/days ahead.  And doing so may well make sense and might be highly profitable.  But it’s just not our thing.

We ourselves are not interested in secondary data points (any prospective bounce is secondary) we believe.  We are interested in primary data points.  And the primary data point, by our work, is the aggressive nature of the Thursday-Friday selloff (not so much the selloff in the market itself as that in individual stocks).  Indeed, the market at some point had to break out or break down from the tight range in which it was gyrating for ten months; that was inevitable and everybody knows it.  And it really isn’t/wasn’t all that important.

What’s important, by our work, is the damage done to the patterns of so many individual stock charts.  Heavy-volume dropping and gapping is never good; it is the type of action that defines the concept and the word “distribution”.

As of Friday’s close very few stocks remain in identifiable uptrends.  Worse, “market construction”, already bad, got worse.

Today’s piece attempts to answer three questions:

1) Is the selloff of the past few sessions overdone and likely at an end?

2) If and as the selloff continues, how much lower might we be headed?

3) If one is compelled (by nature) or required (by mandate) to some buying in a tape like this, what areas of the market are most worthy of consideration?

Today’s video update is the first in an ongoing series of quick thoughts. This is what’s on our mind; what’s on yours?

PDF Link

Our assessment of last week’s price action and the further damage done to individual chart patterns suggests that despite eking out gains last week, the market is considerably worse off than it was the week prior.  As such, we believe the smart move in the day/days ahead – for both long-only and long-short players – is to take advantage of Wed-Fri ricochets and to sell, reducing long exposure and initiation shorts in new names as well as re-shorting stocks that may have been covered well on Monday and Tuesday.

The heart of the report- deals with the following three subjects:

1) Why we believe we did not witness “capitulation” on Monday.

2) How much higher could the market rebound, by our work, before running out of steam.

3) The downside reference points of import introduced last week – revisited and reiterated.

This is what’s on our mind; what’s on yours?

Choose Your Own Adventure is a series of children’s gamebooks first published by Bantam Books in 1979.  Each story is written from a second-person point of view, with the reader assuming the role of the protagonist and making choices that determine the main character’s actions in response to the plot and its outcome.  Choose Your Own Adventure was one of the most popular children’s series during the 1980s and 1990s, selling over 250 million copies between 1979 and 1998 and translated into at least 38 languages.

After the reader makes a choice, the plot branches out and unfolds, leading to more decisions and eventually multiple possible endings.  The types of endings that the books featured (many of which are quite applicable to the stock market) include:

- At least one, but often several, endings depicting a highly desired resolution, often involving uncovering a handsome monetary reward.

- Endings that result in the death of the protagonist, companions of the main character or both, or other very negative endings, because of a fatal choice of the reader.

- Other endings that may be either satisfactory (but not the most desired ending) or unsatisfactory (but not totally bad).

Occasionally a particular set of choices will throw the reader into a loop where they repeatedly reach the same page (often with a reference to the situation being familiar). At this point the reader’s only option is to restart the adventure.

History

In 1969, in the course of making up bedtime stories for his children, Edward Packard wrote Sugarcane Island, the book that became the prototype for the classic Choose Your Own Adventure series. The William Morris Agency submitted the book on Packard’s behalf to several major publishers, all of whom rejected it.

The results are in…

… and the results indicate that despite a wide range of expectations for the market between now and year-end… there is a clear consensus as to how the remainder of the year plays out.  Some very colorful responses, some very bold responses, some very tepid ones, but definitely an overwhelming response to two scenarios (which are quite similar) that together garnered 6.5 out of 10 votes.

The intention of Monday’s piece was to lay out six prospective “trajectories” as to how the market trades between now and year end.  And while there are, of course, any number of potential scenarios for how 2015 ends up (perhaps there are 60, not 6) we wanted to show you how our minds work – the kind of things/scenarios we’re thinking about – and also to see if there is among you, our clients, a consensus as to the path the market will travel to December 31st.

Several hundred individuals responded to this week’s Choose Your Own Adventure, with responses coming in from all quarters of the investment community.

Geographically, replies came in from Switzerland, Germany, the UK, Canada and Israel… and from some 14 States within the U.S.  By “type”, replies came in from a wide and varied group, including Portfolio Managers (long only and hedged), Analysts (Buy side and Sell side), Traders (Buy side and Sell side), Private Client Brokers, Commodity Traders, Currency Traders, a handful of High Net Worth Individuals, and few members of the Media (print and TV).

On each page that follows, you will find the six original “Adventures” as published on Monday.  On top, in red type, you will see the percentage of respondents choosing each adventure.  At the bottom of each page, in red type, you will find our own commentary regarding each scenario, including our take on the likelihood of said scenario playing out.

Having focused exclusively on “the market” for several weeks in a row – as it was quietly coiling sideways yet deteriorating internally, as it started to break, when it broke, and how it has acted since the sharp break – today’s edition of “Money in Motion” focuses exclusively on individual stocks that have held up well during the turmoil of the past month whose chart patterns suggest they are good places to commit capital for those who do not concur with – or cannot by mandate go along with – the argument being made in these pages since late July (and still being made) that there is nothing to be lost by postponing all new buying.

The 391 stocks singled out today (selected from the regular weekend universe of some 3,500 chart patterns) range in market capitalization from $407 million to $258 billion and hail from 9 of the 10 primary sectors, as determined by Standard & Poor’s.  The breadth of the list notwithstanding, it is telling that 300 of the 391 stocks (77%) falls within four sectors: Consumer Discretionary, Financials, Healthcare and Information Technology.

On the pages that follow you will find several tables and charts relating to the 391 stocks in question, followed by the master list itself.

Against a global and US equity backdrop that we believe is bad and getting worse, the stocks presented here, in our judgment, are the best there are to be had.  All things held equal, money short the “the market” and long these names should be just about as good a move as one can make.

This is what’s on our mind; what’s on yours?

Having focused exclusively on “the market” for several weeks in a row – last Monday’s piece focused on stocks to own in the context of “a global and US equity backdrop that we believe is bad and getting worse”.

The 391 picks presented were/are “stocks that have held up well during the turmoil of the past month whose chart patterns suggest they are good places to commit capital for those who do not concur with – or cannot by mandate go along with – the argument being made in these pages since late July (and still being made) that there is nothing to be lost by postponing all new buying.”

One week later, we are pleased with how the stocks performed as a group (equal weighted and market-cap weighted) versus the S&P 500, the S&P 400 and the S&P 600 (and if anyone would like to see the “results” please feel free to contact us directly or reach out to your counterpart here at Cornerstone).

This week again we focus exclusively in individual stock picks, but this week we single out Sells rather than Buys.  Specifically, we would call your attention to the two Sells List featured herein.

The first list comprises stocks which, after breaking down sharply in late August (with the market), have stabilized (like the market) yet are judged to be vulnerable to resumed selling pressure.  Most of the stocks in this group are “Bullish-to-Bearish Reversal Sells.  See the 169 stocks pages 4-8.

The second list comprises especially weak stocks that continue to make (or are threatening to make) new 52-week lows… stocks whose price action is, in a word, abysmal.  These are “Vulnerable-Weak” Sells.  See 336 stocks on pages 7-17.

This is what’s on our mind; what’s on yours?

Our assessment of last week’s price action and the further damage done to individual chart patterns suggests that despite eking out gains last week, the market is considerably worse off than it was the week prior.  As such, we believe the smart move in the day/days ahead – for both long-only and long-short players – is to take advantage of Wed-Fri ricochets and to sell, reducing long exposure and initiation shorts in new names as well as re-shorting stocks that may have been covered well on Monday and Tuesday.

The heart of the report- deals with the following three subjects:

1) Why we believe we did not witness “capitulation” on Monday.

2) How much higher could the market rebound, by our work, before running out of steam.

3) The downside reference points of import introduced last week – revisited and reiterated.

This is what’s on our mind; what’s on yours?

Choose Your Own Adventure is a series of children’s gamebooks first published by Bantam Books in 1979.  Each story is written from a second-person point of view, with the reader assuming the role of the protagonist and making choices that determine the main character’s actions in response to the plot and its outcome.  Choose Your Own Adventure was one of the most popular children’s series during the 1980s and 1990s, selling over 250 million copies between 1979 and 1998 and translated into at least 38 languages.

After the reader makes a choice, the plot branches out and unfolds, leading to more decisions and eventually multiple possible endings.  The types of endings that the books featured (many of which are quite applicable to the stock market) include:

– At least one, but often several, endings depicting a highly desired resolution, often involving uncovering a handsome monetary reward.

– Endings that result in the death of the protagonist, companions of the main character or both, or other very negative endings, because of a fatal choice of the reader.

– Other endings that may be either satisfactory (but not the most desired ending) or unsatisfactory (but not totally bad).

Occasionally a particular set of choices will throw the reader into a loop where they repeatedly reach the same page (often with a reference to the situation being familiar). At this point the reader’s only option is to restart the adventure.

History

In 1969, in the course of making up bedtime stories for his children, Edward Packard wrote Sugarcane Island, the book that became the prototype for the classic Choose Your Own Adventure series. The William Morris Agency submitted the book on Packard’s behalf to several major publishers, all of whom rejected it.

Having focused exclusively on “the market” for several weeks in a row – as it was quietly coiling sideways yet deteriorating internally, as it started to break, when it broke, and how it has acted since the sharp break – today’s edition of “Money in Motion” focuses exclusively on individual stocks that have held up well during the turmoil of the past month whose chart patterns suggest they are good places to commit capital for those who do not concur with – or cannot by mandate go along with – the argument being made in these pages since late July (and still being made) that there is nothing to be lost by postponing all new buying.

The 391 stocks singled out today (selected from the regular weekend universe of some 3,500 chart patterns) range in market capitalization from $407 million to $258 billion and hail from 9 of the 10 primary sectors, as determined by Standard & Poor’s.  The breadth of the list notwithstanding, it is telling that 300 of the 391 stocks (77%) falls within four sectors: Consumer Discretionary, Financials, Healthcare and Information Technology.

On the pages that follow you will find several tables and charts relating to the 391 stocks in question, followed by the master list itself.

Against a global and US equity backdrop that we believe is bad and getting worse, the stocks presented here, in our judgment, are the best there are to be had.  All things held equal, money short the “the market” and long these names should be just about as good a move as one can make.

This is what’s on our mind; what’s on yours?

Having focused exclusively on “the market” for several weeks in a row – last Monday’s piece focused on stocks to own in the context of “a global and US equity backdrop that we believe is bad and getting worse”.

The 391 picks presented were/are “stocks that have held up well during the turmoil of the past month whose chart patterns suggest they are good places to commit capital for those who do not concur with – or cannot by mandate go along with – the argument being made in these pages since late July (and still being made) that there is nothing to be lost by postponing all new buying.”

One week later, we are pleased with how the stocks performed as a group (equal weighted and market-cap weighted) versus the S&P 500, the S&P 400 and the S&P 600 (and if anyone would like to see the “results” please feel free to contact us directly or reach out to your counterpart here at Cornerstone).

This week again we focus exclusively in individual stock picks, but this week we single out Sells rather than Buys.  Specifically, we would call your attention to the two Sells List featured herein.

The first list comprises stocks which, after breaking down sharply in late August (with the market), have stabilized (like the market) yet are judged to be vulnerable to resumed selling pressure.  Most of the stocks in this group are “Bullish-to-Bearish Reversal Sells.  See the 169 stocks pages 4-8.

The second list comprises especially weak stocks that continue to make (or are threatening to make) new 52-week lows… stocks whose price action is, in a word, abysmal.  These are “Vulnerable-Weak” Sells.  See 336 stocks on pages 7-17.

This is what’s on our mind; what’s on yours?

Today’s edition of “Money in Motion” is short and simple.  It is a numerical update of where the world is now in relation to the precipitous lows witnessed on August 24th.

On the pages that follow you will find tables depicting most major equity indices in North America, South America, Europe and Asia… as well as tables of major commodities and government bond yields.

It remains our judgment that US equities will test their August 24th lows and “fail” the test, undercutting said lows.

This, of course, is a minority view, with some 80% of participants in this year’s Choose Your Own Adventure survey of the trajectory the market travels between now and yearend believing that lows of August 24th will NOT be violated and that the market will close higher than where we are at present.

The coming few weeks will be of above average importance – and very exciting – as all will know.  The S&P 500 is trading 9.53% below its all-time high of 2134.72 of May 20th and now has gone 89 sessions without setting a new high, the longest stretch since August 2012.

Trade well,

Carter

A Bull Market is a period in which major indices are in uptrends, enjoying broad support throughout the market, with most sectors and most stocks participating.  Does the current market meet this definition?   No.

A Bull market is a period of generally rising prices where each successive peak and trough is higher than the preceding peak and trough within the uptrend in question.  Does the current market meet this definition?   No.

The goal, of course, (most everyone’s goal) is to identify stocks in uptrends, buy them and profit from them- until they reverse (or as a short seller, doing the opposite).  As long-time readers will know, the transition phase from Bull to Bear is characterized in these pages as “Bullish-to-Bearish” Reversal, where optimism fades, doubt increases, eventually increasing to such an extent that pessimism takes hold.  The point at which pessimism turns to fear is the point at which it can be said a security (or the market) is in a Bear Market and no longer in a Bull market.  In optical terms, a Bear market is in effect when most individual stocks (and eventually the market itself) are in downtrends, characterized by a series of lower highs and lower lows.  Is this an apt description of most individuals stocks at present?   Yes.  Is this an apt description of the overall market?   Yes.

By our work, therefore, we are in a Bear Market.

Today’s piece continues with the discussion above and ends with a dozen or more charts illustrating the situation at hand.