We retired our "Five Bull Market Barometers" in 2020 to make room for a new weekly post that's focused on the three most important charts for the week ahead.
This is that post, so let's jump into this week's edition.
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.
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.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Energy and Crude Diverge
Crude oil (CL_F) and energy stocks have been trending in different directions since this summer, but the gap between the two has become more pronounced during the trailing month. We’ve included the 100-day rolling correlation, illustrating how rare such a prolonged dislocation is. With the Energy sector XLE failing to hold above its June highs this week, this divergence becomes a more-concerning datapoint for energy bulls.
Check out this week's Momentum Report, our weekly summation of all the major indexes at a Macro, International, Sector, and Industry Group level.
By analyzing the short-term data in these reports, we get a more tactical view of the current state of markets. This information then helps us put near-term developments into the big picture context and provides insights regarding the structural trends at play.
Let's jump right into it with some of the major takeaways from this week's report:
* ASC Plus Members can access the Momentum Report by clicking the link at the bottom of this post.
Just when 2022 was getting known for noise, the markets quieted down last week. For the first time in five weeks, the S&P 500 did not move 3% in one direction or the other. For the first time this year, no trading day last week saw the S&P 500 move 1% or more in either direction. We begin a new week with the S&P 500 not having moved 1% or more in either direction in six straight days. It has been a year since it has had a longer streak of small swings.
While bargain clothes shoppers seem to be driving profits in a way Wall Street likes, it takes a certain kind of trader to buy stock in the company when it's making new All-Time Highs.
Well, I just happen to be that type of trader! In fact, one of my favorite setups is to buy stocks making fresh all-time highs. There is no overhead supply of bagholders looking to dump the stock to get back to even. Nothing but blue skies ahead.
And when options premium has collapsed, we can buy long calls to put ourselves in a position to enjoy the possibility of unlimited gains.
