Before digging into the first round of charts in this here column for 2018, I want to wish you and yours a very happy, healthy and prosperous 2018.
I would thus also strongly encourage ye faithful to start 2018 from a trading and investing perspective with a blank canvas. Yes keep the broader stock market trends of past years in mind for perspective, but do not let this derail you from respecting price action. Trends can remain in place far longer than you can remain solvent.
Because I don’t believe in jumping head over heels into the stock or other financial market on Jan. 2 just because it is “finally” open again and its the start of a new year, allow me to ease into this new year with three charts for perspective:
On the first chart I plotted (from top to bottom) the SPY ETF, the Russell 2000 as represented by the iShares Russell 2000 ETF (NYSEARCA:IWM) and the Consumer Discretionary Select Sector SPDR Fund (NYSEARCA:XLY). As you can see, each of these three ETFs is trading at the very upper end of the so-far nine-year bull market. So you know, plenty more sectors of the S&P 500 are also displaying very similar charts.
While this does not mean that stocks can’t go higher nor that they have to crash from here, the reward to risk in my eye and through this multiyear lens in the broader market is certainly getting worse.
To wit, one of my key themes for 2018 is that we will a) see more volatility again (an easy comparison versus the record-low volatility 2017) and thus also more selectivity among stocks again, i.e. being in the right groups of stocks will make a difference again in 2018.
So you know, later this week I will extend to all InvestorPlace readers an invitation to view my 2018 outlook and playbook presentation.
On the second chart I came across a commodity-related theme that looks promising to me into Q1 2018; the base metals as represented by the Powershares DB Base Metals Fund (ETF) (NYSEARCA:DBB). On this chart with weekly increments not that the last two weeks of 2017 led to a breakout on a yearly closing basis past a well-defined diagonal line of resistance. Barring any quick bearish reversals here this trend looks to be intact higher and stock players could look to groups like gold miners such as Newmont Mining Corp (NYSE:NEM).
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Lastly and on a single-stock basis, shares of Twitter Inc (NYSE:TWTR) closed the year 2017 with a bang. On this here chart with monthly increments (candles), note the bullish breakout past horizontal as well as diagonal resistance in the month of December.
Twitter increasingly looks to be getting its act together internally and projections for user and advertising growth are rising. Add in my 2018 theme of more m&a activity and TWTR stock could indeed either be a real acquisition target or just a better organic growth story than it has been in years with upside targets well in the high $20s or even low-to-mid $30s.
In summary, while I see plenty more bullish opportunities in 2018 for stocks, certain commodities, currencies and fixed income markets, selectivity is likely to increase along with at least somewhat of a return of volatility.
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