Once again this month, I’m going to share info on positions that were closed in the month of May. As a reminder, our exit plans are always laid out ahead of time in each trade idea we publish. In every case, the exits mentioned below were all exited in accordance with the plan as laid out. [Read more…]
Polkadot’s Canary In The Coal Mine
To gauge any market trend, we must look under the surface at the components themselves.
This is true for Stocks, Commodities, Bonds, and even Cryptocurrencies. It’s Universal.
For instance, when discussing Smart Contract Platforms like Polkadot or Ethereum, we evaluate whether the bulls are diving deep into the projects of the other offerings in the ecosystem.
This is Technical Analysis 101, and it goes back to Charles Dow in the 1800s looking for confirmation of the major averages.
Over 130 years later, in entirely new assets, the same principles govern markets.
In this case, we’re looking at Polkadot’s first project release and Canary Network, Kusama $KSM.
Similar to how Litecoin is seen as the experimental little brother to Bitcoin, any new additions to be implemented on Polkadot go through Kusama first.
For this reason, the two trade very much in tandem.
So how about this divergence?
Under The Hood (06-01-2021)
From the desk of Steve Strazza @Sstrazza.
Welcome back to our latest “Under The Hood” column for the week ended May 28, 2021. This report is published bi-weekly and rotated on-and-off 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.
We use a variety of sources to generate the list of most popular names. There are so many new data sources available that all we need to do is organize and curate them in a way that shows us exactly what we want: A list of stocks that are seeing an unusual increase in investor interest.
Watch this video for a “behind the scenes” look at our process.
Whether we’re measuring increasing interest based on large institutional purchases, unusual options activity, or simply our proprietary lists of trending tickers… there is a lot of overlap.
The bottom line is there are a million ways to skin this cat. Relying on our entire arsenal of data makes us confident that we’re producing the best list each week and gives us more optionality in terms of finding the most favorable trade setups for our clients. [Read more…]
Is the Dollar About to Get Pounded?
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
The US Dollar remains at crucial inflection points versus both emerging and developed currencies.
In last week’s note, we pointed out the critical 19 level in the WisdomTree Emerging Currency Fund $CEW, along with the numerous tests of support in our custom USD vs. BRICS Currency Index.
Not only is the USD looking increasingly vulnerable against emerging and developed currencies, but we’re now starting to see some of the major Dollar crosses break down or resolve lower.
In many cases, these moves are confirming long-term reversal patterns with USD/CAD. For example, the Dollar just broke to fresh multi-year lows relative to the Canadian Dollar.
We reviewed the chart in this column a few weeks back, highlighting the possibility of an impending double top.
[Premium] Details For June 2021 Monthly Strategy Session
These are the registration details for our Live Monthly Candlestick Strategy Session for Premium Members of All Star Charts.
This month’s Video Conference Call will be held on Thursday June 3rd @ 6PM ET. As always, if you cannot make the call live, the video and slides will be archived and published here along with every other live call since 2015.
Here are the details for Thursday evening: [Read more…]
What Monthly Candles Are Telling Crypto Investors
Shifts are taking place for the first time in over a year.
Bitcoin just printed its second consecutive negative monthly candle, which hasn’t happened since the Covid crash. Meanwhile, Ethereum was down on the month for the first time since September of last year.
Riding along in the Cryptocurrency space has been the ultimate momentum strategy. As a result, gains have far exceeded any risk asset by a country-mile.
But the same applies to the downside.
In the case where volatility’s ramped up as it has, there’s nothing wrong at all with sitting on heavy cash positions until a more definitive trend forms. If the history of these digital assets have taught us anything, it’s that knowing when NOT to be in the trade puts us in an incredibly advantageous position.
Just take a look at Ethereum’s monthly candle:
“Follow The Flow”
From the desk of Steve Strazza @sstrazza
This is one of our favorite bottoms-up scans: Follow The Flow. In this note, what we do is simply create a universe of stocks that experienced the most unusual options activity – either bullish or bearish… but NOT both.
What we mean by this is that we have options experts, both internally and through our partnerships with TheTradeXchange, whereby we do all the digging through the level 2 details and do all the work upfront for our clients, in order to isolate only those options market splashes that represent levered and high-conviction, directional bets.
We weed out all the noise for you in terms of hedging activity and ensure there are no offsetting trades that either neutralize or cap the risk on these unusual options trades. What this leaves us with is a list of stocks that large financial institutions are putting big money behind… and they’re doing so for one reason only: Because they think the stock is about to move in their direction and make them a pretty penny.
From there our job is easy. We merely flip through our list of stocks that saw unusual options activity, and using many of the same technical filters we do for our other bottoms-up scans, we simply pick the best of these setups and follow the money flow to fatten our own pockets along with some of the smartest financial institutions. It’s a simple concept, really.
Whether the transaction was executed on the bid or the offer matters as well. Which counterparty was the aggressor definitely matters otherwise we wouldn’t know whether the trade was a bullish or bearish bet.
For example, a massive amount of put contracts executed at the ask is a bearish bet (all else equal). But, did you know that a bunch of these very same puts executed on the bid is actually bullish? In this scenario, the seller is the aggressor and they are shorting the puts, which is similar to buying calls on the ask and betting on higher prices.
But you don’t have to worry about any of that. We’re doing this part for you!
All you need to know is that we’ve designed a list of stocks that some of the largest financial institutions on wall street are either very bullish or very bearish on… and we’re going to follow them into these trades. BUT only if they meet our own criteria.
Due to the nature of the catalysts applied to create these universes of stocks, most of these trades will tend to be on the shorter-term end of the spectrum… we’ll typically be looking to take profits a few months out at most.
At the same time, there will be splashes in the options market whereby participants put on “leaps” – or other long-term strategies, which would warrant a longer timeframe setup.
Either way, after running this scan internally for years now, we’re confident that we’ll find some great trade ideas from these lists – and better yet, they’ll come from both the long and short sides.
Just remember, the main idea behind this note is simple, and no different from the other really. We’re merely creating a watchlist of stocks that have potential tailwinds, or headwinds at their backs, increasing the likelihood that they will either start to, or continue trending. After all, we need trends to make money… right?
Then, as with any other scan, we apply a series of technical filters in order to focus on the strongest names with bullish options flow as well as the weakest ones that experienced bearish unusual activity in the options market each week.
At the end of the day, the idea for this universe based on unusual options activity is to follow the smart money into some of their largest-conviction trades in hopes to ride these names higher or lower right along with them.
And of course, as with any stock we’re in… we’ll also have the primary trend at our back.
Look For Risers In Crypto’s Mess
It’s messy out there.
Breakouts are failing all over the place.
In recent weeks, it’s been a tough time for any type of trend following strategy. That’s because most are not trending, but rather in ranges.
When this sort of action unfolds as it has done, we play an exercise.
That is, we zoom out.
In all this gut-wrenching volatility, let’s not forget the extraordinary gains this asset class has achieved over the last few years are astonishing, even after a violent 50% crash.
Consolidation is painful, but it’s necessary.
Let’s jump into it with a quick look at how the top digital assets performed yesterday: [Read more…]
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