The noise machines are getting louder these days with Junk Bond Funds falling to levels not seen since March. You have the frustrated stock market bears data mining the heck out of everything trying to find something to justify their losing positions, or lack of winning ones in many cases. Remember it's not just about the money they've lost trying to short the stock market, it's the overwhelming amount of opportunity cost already incurred by simply not being long enough. It's double the frustration. I've noticed these bears turning to the bond market for guidance.

While the yield curve continues to fall, we've actually found that historically the stock market does the best when the yield curve is exactly where it is today (2s-10s specifically). But today I want to talk about the spreads between Junk Bonds and Government Bonds. When the stock market is showing plenty of evidence of risk appetite, we want to see the bond market confirming that as well, not diverging from it.

As you guys know I've been pounding the table bullish of stocks for a long time. Not just U.S. stocks, but globally including both developed and emerging markets. This aggressively long approach is nothing new to us. Along the way, however, I've tried to point out some of the things we've been watching closely as a warning that a bullish thesis is most likely wrong. Again, it's not so much about how high we think a stock or sector or index can go, but at what point are we wrong? What's the risk? is the more most important question.

What many investors fail to understand is that we're not here to be right, we're only here to make money. There's a difference. We want to determine where we are wrong prior to even entering into a new investment. In other words, there needs to be somewhere between the price where we buy something and zero where we admit that our thesis was incorrect. To take this process even further, we want to imagine what the overall market environment would look like in the off chance that we are not correct. I say that kind of tongue-in-cheek because as many of you guys already know, I assume that I am wrong every single time and focus...

A wise Egyptian man once taught me, "If you trade the averages, you'll get average returns". The media likes to focus on what "The market" is doing today?". People want to know, "What did the market do today?". It's just how we are and how we think. But it's not the best approach, in my opinion. Far from it.

This is not a stock market, it is a market of stocks. There's a difference. It's funny how many people have tried shorting the major US averages over the past couple of years only to see sectors rotating and a majority of the components holding them up. While some sectors go through corrections, another one steps up and leads the averages higher. Sector rotation is the lifeblood of a bull market. This one has been no different.

Today I want to turn your attention to a group of stocks that I like to include in the Chartbook. These are a group of some of the most important names that do not fall within the category of the Dow Jones Industrial Average or Dow Jones Transportation Average. We're in the process of doing some updates on the site and will be adding several new workbooks...

Since September we've been in the camp that the US Dollar is heading higher and potentially a lot higher. So if you want to be long the US Dollar, that is one way to take advantage of it. Short Euro has been another. But my favorite has been to be short the Gold Miners, particularly the more vulnerable Junior Gold Miners $GDXJ. So far this is working well. But I think it's worth reiterating that we, in general, want to approach the marketplace within the context of what we think will be a rising US Dollar environment.

Today we're taking a closer look at what's going on here:

They say not to kick someone when they're down. But in the market it's the opposite. When they are down is exactly when you want to kick them. This is especially the case when they are down while other things are up. We don't want to be shorting the strongest stocks. We want to be shorting the underperformers where the holders are losers, they're wrong, stuck and need to get out, but can't. We are here, not only to make money on the upside of things, but also to benefit from the losses of others. When this pain starts to really set in, that's when we want to kick them, when they're down!

In this case I have 3 examples of people who are down. This is in the face of stocks ripping:

It is such an incredible blessing to have monthly candlestick charts of all the markets around the world at our disposal. It's essentially free data which is easily organized into a visual format to help us identify the direction of the underlying trends. It doesn't matter what your time horizon is, the monthly candlesticks offer a longer-term perspective from which to begin your analysis. From there is when you work your way down to more intermediate and shorter-term time horizons, but keeping the direction of the underlying primary trends in context.

I have a massive workbook of Monthly Candlestick charts that I review at the end of every month. I do not even open this workbook in the middle of the month. The fact that I only look at this workbook 12 times a year forces me to always come back to the primary trend, not allowing me to forget it. This exercise really helps me stay true and keeps me honest. It is easily one of the most valuable parts of my entire process.

These are some of the things that stood out to me the most:

The Nasdaq 30 is an equally-weighted index that I created which consists of the 30 largest stocks in the Nasdaq. Collectively these 30 companies represent over half of the entire market capitalization of the Nasdaq Composite. So just like the Dow Jones Industrial Average is a good gauge of stock market strength, I feel that my Nasdaq30 Index offers similar insight but for different types of companies.

Today we’re going to do a deep dive into these 30 Nasdaq stocks. As always I walk through them on both weekly and daily timefames. We want a longer-term structural perspective and then break things down to more tactical time horizon for execution purposes. Then we look at them collectively to weigh whether there is more good or more bad so we can make better, evidence-based decisions.

Here are a few things that stood out to me:

I'm not sure if you guys noticed what's been going on in Small-caps over the past couple of weeks, but I think it's worth pointing out. First of all, remember this has been a tremendous leading indicator for a long time. I was pounding the table in November about that historic breakout when the Russell2000 Futures engulfed the prior 18 weeks. That was nuts. I said then that we would likely be talking about that event for decades to come. More recently I pointed out the fresh breakout after a period of consolidation. Each of these came along with stocks as an asset class in a healthy environment. They're in an uptrend and they're all in one together. Small-caps have been a great tell for the trend of the markets. If you've been bearish or not as long as you should have been, it's probably because you haven't taken the Russell2000 seriously enough.

What we're seeing right now appears to be a healthy consolidation within an ongoing uptrend. Chart observers might call these "Bull...

Consumer Discretionary has to be one of the most important sectors in the U.S. With Consumer Staples taking a nose dive recently, especially relative to the S&P500, the approach has certainly been "risk on". Severe underperformance out of the Staples historically comes within an environment of rising stock prices. Consumer Discretionaries are typically a beneficiary of this appetite for risk towards equities.

Today we are taking a deep dive look at Consumer Discretionary Stocks pointing out the good, the bad and the ugly. This is a great area to focus on right now because are monster stocks in very clean uptrends as well as disasters that can still be shorted.

We've been on the right side of the trend for stocks. A big reason for that was because of our focus on the Banking sector. Financials are one of the most important sectors on earth and it's hard for stocks as an asset class to fall if Bank stocks are healthy and breaking out to new highs. It's that simple. Pull up a 100 year old chart of J.P. Morgan $JPM and overlay the S&P500 chart. They look exactly the same. We want to always keep that in mind for future reference.

After such a nice run in stocks, and in Financials specifically, I think it's time to take a closer look at what is going on. Have we come too far? Or should we be expecting another leg higher? Rather than focusing on the sector ETFs or sector indexes, let's turn our attention to the actual components of this space. This weight-of-the-evidence approach is much more reliable and efficient than simply looking at an index representing that group. 

A lot of people seem to be bearish of stocks. Some think they can go higher. But I think they can still go a lot higher. This was the point that I was making on our Conference Call 3 weeks ago. The information coming in since then continues to confirm all of the things we wanted to see. While I was pounding the table to be buying I also pointed to a group of things we wanted to see happen to make sure we were in the right direction. This included US Bank Stocks rallying with US Interest Rates, and Gold and Bonds falling. We wanted to see Europe break out along with U.K., rather than rolling over creating a big mess out there. Nikkei needed to recover and stay in a bullish range in momentum. Every single one of these things happened. So yes, I absolutely think we can still go a lot higher in stocks.

From an asset allocation standpoint, one chart that has been an important one in my eyes is how US Stocks are doing against competing asset classes, bonds and Gold in particular. If stocks are in the bull market that we keep claiming they're in, then there...

I can't tell you guys how important it is to stop whatever you're doing and take a step back. It's so easy for us to get caught up in the day to day noise and forget about the underlying trends in the market. We're human. We're built to be this way. But recognizing this flaw is an important step in correcting it and trying to benefit from the fact that others are unaware. One of my favorite ways to do this is to look through a series of Monthly Candlestick Charts at the end of every month. Remember, we don't want to look at these mid-month as candles are incomplete. It is the final results that we are most concerned with.

We want to use this bigger picture strategy to identify the directions of the underlying trends in the market. This goes for all markets: Stocks, both U.S. and Globally, Interest Rates, Precious Metals, Energy, Currencies, etc. This is how we know what the trends are so we can then go to our weekly and daily charts to look for more tactical opportunities within those ongoing trends. This is a very important element to our top/down approach.