From the desk of Tom Bruni @BruniCharting

Last week I sat down with Justine Underhill for Real Vision's "Trade Ideas" show to discuss a tactical trading opportunity in Palladium and a longer-term play in the Insurance industry.

These are themes I've shared with our Institutional Clients over the last few weeks. I hope you find some value in them.

From the desk of Tom Bruni @BruniCharting

Wednesday's Mystery Chart is one of my favorite charts, so thank you everyone for your feedback and participation.

I received a lot of answers, but most of you were buyers of this recent pullback, while others were waiting to see if prices reacted positively to support before jumping in. Not many of you were sellers.

With that as our backdrop, let's get into it.

Monday was our Members-Only Conference Call for both India and the US (see JC's video here) and the most overwhelming theme was that Equities are not trending, so what does that mean for us as market participants?

Twice a year the Nifty Indexes are reconstituted on March 31 and September 30, replacing stocks that don't fit the criteria with those that do. This past weekend we adjusted our chartbooks to reflect the changes that occurred at the end of the first quarter, so I wanted to write a quick post detailing some of the changes.

We hear this term a lot: "Overhead Supply". But what does that mean exactly?

Well, I'll tell you what it means to me. When I look at today's stock market, I see stocks rallying throughout 2017 and running into resistance, or more selling than buying, in January of 2018. After some distribution, stocks rallied once again late into the 3rd quarter last year, only fail and sell off. That was a beautiful sell-off in stocks that many of us enjoyed very much.

Fast forward to 2019 and we've had a killer rally in stocks that has brought us back to where this overhead supply party first got started early last year. This is now the 3rd attempt and failure for stocks. And when I say stocks, I don't just mean the S&P500 or Dow Jones Industrial Average, I'm referring to stocks as an asset class.

In this video, I try and explain what I mean by pointing out the behavior of the Global 100 Index, Dow Jones Industrial Average, Dow Jones Composite Average, Dow Jones Internet Index and the IPO Index. They're all telling a similar story of "Overhead Supply". In the future, when I give...

People love to hear a good story. We have an evolutionary desire to gossip and be told stories even if we know they're untrue. As Sapiens, it's important to know this about ourselves. But you know who definitely knows it? The media. And they're going to use that desire against you every single day for their own profit. They will tell you stories all day every day as long as you're willing to listen. They're so thirsty for your attention that they'll tell you anything just so they can sell ads to their precious sponsors. It's their job to make the noise. It's our job to ignore it.

Today, I'm going to show you the chart that actually tells the real story about what is going on in today's market. I comb through thousands of charts a week and I can tell you for a fact that there is one underlying theme that I'm seeing across the board: Stocks, Sectors and Indexes, and that is the Overhead supply we've been stuck below since early last year. 

When trading against the primary trend, there are a few things we look for to define our risk and raise our probability of success.

We outlined them in a post a while back, but they essentially boil down to the following:

1. Our downside price target has been met.
2. Prices undercut that price target and quickly reversed.
3. Momentum diverged positively as prices made a new low.
4. Prices are very extended from their mean (200-day moving average).
5. Quick follow-through confirmed the supply/demand imbalance.
6. Short interest in the stock (not required, but amplifies move).

We are now seeing a few potential opportunities given that stocks have been hit, some harder than others, over the last few weeks.

Here's Reliance Infrastructure quickly reversing off our downside price objective near 100.30 as momentum diverges. As long...

From the desk of Tom Bruni @BruniCharting

Wednesday's Mystery Chart is one of my favorite right now, so thank you everyone for your feedback and participation.

I received a lot of answers, but most of you were skeptical of the breakout and wanted to see more before getting involved. A few others wanted to be long with a tight stop and few, if any, were sellers.

With that as our backdrop, let's get into it.

The actual chart was the ratio of the Insurance subsector ($IAK) relative to the S&P 500, which is breaking out to 11-month highs as momentum gets overbought for the first time in nearly 2 years.

To me this looks like a textbook trend reversal, so while there may be some backing and filling over the near-term, Insurance stocks look set to outperform over the intermediate/long-term.

Click on chart to enlarge view.

The relative strength is also...

From the desk of Tom Bruni @BruniCharting

The trend is your friend...but what do we do if there is no trend?

Paul Ciana and I go way back to 2006 when him and I were studying for the CMT exams together. Today, Paul is the Chief FICC Technical Strategist at Bank of America Merrill Lynch Global Research. In English, that means everything outside of equities. It's nice to see your friends succeed and watching him crush it is definitely one for the good guys.

In this podcast episode we dive deep into the FX world where Paul walks us through 3 important currency pairs that all stock market investors should follow. We talk about Crude Oil and Gold and other precious metals. The Dollar is a key focus right now for both Paul and me, so we get into what the implications are for stocks and other assets around the world.

I really enjoyed this conversation. It could have gone on for hours...

From the desk of Tom Bruni @BruniCharting

I couldn't help but see many of the same folks who were happy about Trump's "Trade Deal" tweets when they drove the stock market higher complaining as his tweets sent Futures lower on Sunday night and again today after the bell.

I thought this might be a good time to remind ourselves of something.