From the Desk of Steve Strazza @sstrazza and Alfonso Depablos @Alfcharts
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've had some great trades come out of this small-cap-focused column since we launched it back in 2020 and started rotating it with our flagship bottom-up scan, Under the Hood.
For the first year or so, we focused only on Russell 2000 stocks with a market cap between $1 and $2B.
That was fun, but we wanted to branch out a bit and allow some new stocks to find their way onto our list.
We expanded our universe to include some mid-caps.
To make the cut for our Minor Leaguers list, a company must have a market cap between $1 and $4B.
These shiny rocks are in the early stages of their next secular bull run. But I won’t let my bullish bias detract from the obvious: Gold has seen brighter days.
Ok, that's a stupid question but I'm out of pithy headlines.
When the market more or less is only offering you one style of options trade that makes sense in this environment, things might get a bit monotonous around here. And when that happens, my brain offers up 'dad joke'-level headlines :)
But there's nothing boring about making money and our delta-neutral credit spread trades continue to work. So we're continuing with them with today's trade.
These shiny rocks are in the early stages of their next secular bull run. But I won’t let my bullish bias detract from the obvious: Gold has seen brighter days.
Overhead supply dominates the charts while risk appetite cools and prices fall toward critical support levels.
Is it time to buy the dip?
No, especially as investors focus on more attractive investments…
The strongest trending assets outperform their alternatives. (Buy the strongest, sell the weakest.)
And every asset group has its strong man leading the way. For precious metals, it’s silver.
Gold and the gang benefit when their “strongest performing asset” is their crazy cousin – silver.
Silver often spearheads a proper risk-on rally in precious metals as it surpasses gold.
While I stand by my line of reasoning, I did manage to leave out one overarching theme. And it’s an important one!
It’s a market theme that’s played out for almost three years, extending beyond energy to encompass commodities as an asset class.
I’m talking about the commodity-bond ratio…
Commodities relative to bonds was the most impactful high-level chart headed into 2021.
A major trend reversal favoring raw materials over US treasuries signaled a new, wild world on the horizon – a world characterized by inflation and rising interest rates.
This shift in relative strength caught many investors off guard as commodities also outpaced stocks for the first time in over a decade.
Shockingly, commodities were back in the conversation as analysts struggled to deem the energy space a viable investment. (As if the price charts didn’t provide ample evidence.)
