From the desk of Steve Strazza @Sstrazza

When investing in the stock market, we always want to approach it as a market of stocks.

Regardless of the environment, there are always stocks showing leadership and trending higher.

We may have to look harder to identify them depending on current market conditions… but there are always stocks that are going up.

The same can be said for weak stocks. Regardless of the environment, there are always stocks that are going down, too. 

We already have multiple scans focusing on stocks making all-time highs, such as Hall of Famers, Minor Leaguers, and the 2 to 100 Club. We filter these universes for stocks that are exhibiting the best momentum and relative strength characteristics. 

Clearly, we spend a lot of time identifying and writing about leading stocks every week, via multiple reports. Now, we’re also highlighting lagging stocks on a recurring basis.

Welcome to the Short Report.

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Risk assets are on the ropes after taking a series of heavy hits last week.

Equities have been a sea of red across the board as selling pressure broadens out. Growth continues to collapse, and even many of the latest leadership groups –  like banks – are failing to hold their breakouts.

When we look inside the stock market, there's certainly a bear market feel to the price action in recent weeks. For example, offensive areas are being sold indiscriminately while defensive sectors make new relative highs. 

But when we look outside the stock market, the story is very different. Despite the volatility, we’re still not seeing much of a bid in traditional safe-haven assets.

In today’s post, we’ll focus on the Japanese yen. But it’s the same story for gold and Treasuries.

Here is a look at all three. From top to bottom, this is the Gold ETF $GLD, the US Treasuries ETF $IEF, and the Japanese yen $JPY:

From the desk of Steve Strazza @Sstrazza.

Welcome to our latest Under the Hood column, where we'll cover all the action for the week ended January 21, 2022. This report is published bi-weekly and rotated with our Minor Leaguers column.

What we do here is analyze the most popular stocks during the week and find opportunities to either join in and ride these momentum names higher, or fade the crowd and bet against them.

From the desk of Steve Strazza @sstrazza

This is one of our favorite bottom-up scans: Follow the Flow. In this note, we simply create a universe of stocks that experienced the most unusual options activity — either bullish or bearish… but NOT both.

We utilize options experts, both internally and through our partnership with The TradeXchange. Then, we dig through the level 2 details and do all the work upfront for our clients. Our goal is to isolate only those options market splashes that represent levered and high-conviction, directional bets.

We also weed out hedging activity and ensure there are no offsetting trades that either neutralize or cap the risk on these unusual options trades.

It's Saturday Morning Chartoons time. 

This is the weekly post that aggregates all the charts we put together throughout the week and organizes them all into one, easy to flip through deck.

You can find the whole list of trades here.

Below you'll find the full PDF of this week's charts:

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley

The bull market for commodities is alive and well. They were the top-performing asset class last year, and they’re kicking off the new year with a lead once again. 

The energy-heavy CRB Index is printing new seven-year highs, and our ASC Equal-Weight Commodity Index just resolved from a nine-month base to its highest level since 2013.

To take advantage of this area of leadership, we’ve been highlighting strength and outlining long ideas in a variety of commodity markets.

We know not everyone has access to the futures markets, and that’s OK, because there are plenty of opportunities to express a bullish thesis on commodities through the equity market.

To make this easier, we’ve put together a universe of stocks that offer investors exposure to a wide array of different commodities.

Let’s dive in and talk about some of them.

Here’s our Natural Resource Stocks table:

From the desk of Steve Strazza @Sstrazza

Our International Hall of Famers list is composed of the 100 largest US-listed international stocks, or ADRs. We’ve also sprinkled in some of the largest ADRs from countries that did not make the market-cap cut. 

These stocks range from some well-known mega-cap multinationals such as Toyota Motor and Royal Dutch Shell to some large-cap global disruptors such as Sea Ltd and Shopify.

It’s got all the big names and more -- but only those that are based outside the US. You can find all the largest US stocks on our original Hall of Famers list.

The beauty of these scans is really in their simplicity.

We take the largest names each week and then apply technical filters in a way that the strongest stocks with the most momentum rise to the top.

Based on the market environment, we can also flip the scan on its head and filter for weakness.

Let’s dive in and take a look at some of the most important stocks from around the world.

Here’s this week’s list:

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

There have been some fireworks to kick off the new year. One of the biggest developments in 2022 has to be the US 10-year yield breaking to its highest level in two years.

The direction in which yields resolve from their 2021 consolidation will impact all the major asset classes, including bonds, stocks, and commodities. We’re already seeing procyclical assets catch an aggressive bid as the 10-year flirts with an upside resolution.

For now, the path of least resistance is higher. But we still need to see follow-through and confirmation before we can be comfortable that these new highs are here to stay.

When we look at the international bond market, it’s not just domestic Treasury yields that are on the rise. We’re actually seeing rates make new highs all across the developed world.

From the desk of Steve Strazza @Sstrazza

Welcome to the 2 to 100 Club.

As many of you know, something we've been working on internally is using various bottom-up tools and scans to complement our top-down approach. It's really been working for us!

One way we're doing this is by identifying the strongest growth stocks as they climb the market-cap ladder from small- to mid- to large- and, ultimately, to mega-cap status (over $200B).

Once they graduate from small-cap to mid-cap status (over $2B), they come on our radar. Likewise, when they surpass the roughly $30B mark, they roll off our list.

But the scan doesn't just end there. We only want to look at the strongest growth industries in the market, as that is typically where these potential 50-baggers come from.

This is the video recording of the January 2022 Mid-month Conference Call.

From the desk of Steve Strazza @Sstrazza and Grant Hawkridge @granthawkridge

One of the most important themes these days is the rotation between growth and value stocks. Groups like energy and financials have been breaking to new highs while growth and tech indexes have come under serious pressure.

So far, 2022 has been a true tale of two markets.

While cyclicals and value stocks appear to be gearing up for a momentous year, it looks like the party is finally coming to an end for the growth trade.

We want to lean on the value-heavy leadership groups for long opportunities in 2022. As for growth, we think it's likely to remain messy as interest rates continue to rise.  

When we look beneath the surface at growth and value stocks right now, our breadth data is confirming the action we’re seeing at the sector level.

Let’s dive in and discuss... 

Here's one way to visualize the opposing paths of large-cap value and large-cap growth right now. This indicator shows us the percentage of stocks above their 50-day moving averages for each of these indexes:

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

What started out as a potential bullish continuation pattern in the US Dollar Index $DXY has turned into a near-term top.

After weeks of failing to hold breakouts on an individual currency basis, the tight coil in the DXY finally resolved lower.

The brief reprieve in USD strength was immediately felt across markets last week, with cyclical/value stocks and procyclical commodities catching an aggressive bid.

Now that the headwinds associated with dollar strength appear to be easing, will risk assets enjoy a tailwind in the form of sustained USD weakness?

Or was this just the latest fake-out from the DXY?

Let’s take a look at a couple of charts and highlight the levels we're watching in the coming weeks and months.

First up is the US Dollar Index: