Trend Check with Tushar Chande

Fasten Your Seatbelts

The market is trading on emotion, so it is time to fasten your seat belts.  The melt-up in Financials best captures the near euphoric rally to new highs as tax cut legislation moved forward in the upper chamber in D.C.  As Chart 1 below of FINU, the ProShares Ultra Pro Financial Sector ETF shows, the past three days have seen sharp moves.  The last bar has a small open-close range and a long high-open range, which suggests the market has touched some resistance overhead.

 

Chart 1: The FINU accelerated to new highs, but as the last bar shows, it seems to have met some overhead resistance.

 


My Berkshire Post was Well Timed

I wrote about the recent weakness in Berkshire Hathaway (BRK/B) being a good entry point for investors.  You can see the before (Chart 2) and after (Chart 3) for yourself below.

 

Chart 2: I had flagged the BRK pull-back into support as attractive to long-term investors, with support marked by the green rectangle. (See my post here.)

 

Chart 3: Berkshire came down the bottom of the green rectangle and zoomed higher as part of the recent melt-up in Financials.


Trend Following Models are All Green

All trend-following models are green, and market breadth measures i.e. trading environment is also green across all time periods. This is what we should expect after a strong market move. For details of the trend-following models, see here.

 

Chart 4: My trend-following models are bullish across all time periods (which increase from top to bottom) and market breadth (which increases from left to right).  This is exactly what one should expect after the strong rally of the past few days.

Chart 5: Market internals of the Russell 1000 universe is also bullish across all time periods (that increase from left to right).  This means at each time step, there are more stocks trending higher than being flat or down.

 

Looking Ahead


As I have said in my recent posts, the market is being driven by head-lines from Washington. The sell-off in Technology stocks earlier this week that accompanied the melt-up in Financials shows that head-line risk can cut both ways.  Fasten your seat belts!

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