Charts Trump Narratives

Some of my favorite charts right now

Let’s clear something up. Straight off the bat.

The revisions seen in BLS data this week were weak. Real weak.

911k jobs erased from the books, fueling talk of a pending recession (the biggest since 1929!) and stock market collapse.

Maybe, maybe not.

All that matters right now is that stocks continue to climb the wall of worry, bounce at key levels and breakout to the upside. The perfect metaphor for this being that on the same day that the BLS revisions were announced, the S&P500 closed the day with yet another all time high. Poetry in motion.

Is there a theory that suggests what we’re witnessing is a market nearing its nadir on the promise of rate cuts? Sure.

Is there a theory that suggests that stocks have climbed too high, too soon - and that a 10% correction is a near certainty in October? Sure.

Is there a theory that suggests that the upcoming rate cuts are a ‘sell the news’ event that sees stocks, indices and crypto give back some gains? Sure.

But here’s the thing about theories - the market doesn’t give a fuck about them.

And nowhere is that more evident than in the charts.

Everywhere you look there are risk assets bursting higher or rebounding off key support levels - locking in higher lows ready for the next leg higher. That’s not a theory, it’s fact.

Just take a look at high beta relative to low beta stocks:

Since bottoming in April, high beta has been on a charge throughout the summer, breaking to new highs on a relative basis.

Further confirmation can be seen elsewhere, playing out in real time. Check consumer staples (defensive, risk-off stocks) relative to SPY breaking to new multi-year lows:

Will this trend last forever? Probably not. But what’s interesting is that despite a market that’s screaming ‘risk on’, top callers, doubters and doomers remain.

Don’t believe me?

Here’s the latest AAII bulls-bears survey showing 11 straight weeks of bearish sentiment (that’s a greater % of bears compared to bulls). Source: Subu Trade.

As someone that’s bullish - right here, right now - this doesn’t come as a shock, but it’s certainly not a cause for concern. If anything, it’s more likely to act as fuel to the upside, rather than a catalyst for a downturn.

The Bears Have a Point

I’m not dismissing the bearish thesis outright. In fact, when it comes to narratives around employment data, inflation and sentiment, bears arguably have more to feast on now than in any time over the last twelve months.

Inflation remains sticky - trending higher each month since April.

The jobs market is weakening - 991k jobs wiped from the slate.

Credit delinquencies and auto loans - highest levels in years.

But here’s the thing. The one lesson we must learn to accept if we’re to make it as traders:

Until the charts confirm what the bears are saying, their words amount to nothing more than binary on a screen. Intangible, untradeable noise.

So here’s how I’m trading, right here, right now.

If the charts tell me the environment we’re in is ‘risk on’ - supported by XLP making new lows relative to SPY, high beta outperforming low beta etc. - then I’m going to position myself for further upside, especially when price retraces down to a key level and buyers step in.

Much like they’re doing on AMD at the time of writing:

Note the linear fibs drawn from the March 2024 highs to the April lows and how buyers stepped in at the 0.5 fib level during yesterday’s session. When this happens, I want to be buying calls, hopeful that buyers will continue to drive prices higher (AMD is currently +4% pre market and my calls are sitting pretty).

CRWD is offering a similar setup, with buyers stepping in at a key fib with price breaking above a key channel. To me this offers great risk-reward and I’m happy to buy calls here so long as $411 continues to hold.

There are too many charts to share that share a similar setup right now - you just have to put in the work to find them. Thankfully they’re not too difficult to find.

It’s a bull market until it isn’t. Trade what’s in front of you and ignore the bears. Sure, you might agree they have a point, but until the charts confirm what they’re saying, it’s all just noise.

Best,

Alex