Technical Strategy Video (Recorded Monday, November 8th):
Key Takeaways
- Equity indices still showing no evidence of reversal; However, breadth has been flat lately and VIX higher by 14% over the last three trading sessions. Until evidence of Tech, Financials and Healthcare turn lower, it’s right to still favor additional gains
- Cannabis names look ripe to bounce sharply in the next 3-6 months after stock price performance literally has “gone up in smoke” for most of 2021
- Materials sector can be favored for outperformance, as relative strength has surged in the last week and the group came close to hitting all-time highs Monday
- Bitcoin likely to show better relative strength into late November after Monday’s gains
Equal-weighted Value Line Geometric Composite just pushed back to new all-time highs a couple weeks ago, showing a bullish albeit less overbought picture as the SPX or NDX.
Cannabis issues likely to start to gain momentum after sharp rally on Monday
This entire group has been very hard hit for most of the year, and even after Monday’s gains, remains down more than 55% off peaks made nine months ago in February.
Reasons for optimism now are Three-fold. First, downtrends have been exceeded going back since this Summer which followed some meaningful positive momentum divergence.
Second, DeMark indicators show the potential for exhaustion in the form of TD Combo and/or TD Sequential 13 countdown patterns to be confirmed possibly by end of week. (Daily were confirmed last week; Weekly require a 11/12 close over $14.15.) So confirmation of a trend reversal looks close
Third and perhaps most importantly, mean reversion typically kicks in during the month of November most years, where laggards tend to bounce into February, while leaders underperform. This looks to be a very poor underperforming group for most of this year, so this bounce gives me optimism technically. The MJ or MJ Alternative Harvest ETF, is shown below, holds 5% or greater positions in ACB, TLRY, CGC, OGI, CRON, and GRWG. It looks right to start bottom fishing given the three reasons stated above.
Materials almost hit new all-time highs, and likely outperforms if/when the US Dollar starts to turn lower with more velocity
The chart below illustrates the Equal-weighted Materials ETF by Invesco, ticker RTM. This looks bullish after recent gains, but might stall out temporarily near former peaks. Consolidation should provide attractive buying opportunities and it looks right to buy dips, looking to press longs on gains back to new highs.
Finally, Bitcoin broke out above the key $63.3k area that effectively breaks the triangle pattern from 10/20 nearly a month ago. This is constructive technically and should carry prices up to 72k initially and then 77.6k which are measured Extension targets based on the initial rally up from July. Momentum is not yet overbought on daily nor weekly timeframes.
Bitcoin now showing evidence that it might show better relative strength than Altcoins in the weeks to come based on a breakout in its Market-cap Dominance chart
Cycles in Bitcoin and Ethereum show upward progress into end of November before a peak in price that could persist into 2022. Thus, this breakout in BTCUSD might signal the start of a final push-up for Q4 2021 before the Crypto market shows more pronounced consolidation into next year. At present, this is premature, and strength in Bitcoin, Ethereum and many other Altcoins looks likely in the weeks to come.
