The Scales are more balanced than last month but are still tipped toward risk and away from opportunity.
Macro folks are sorting out just how bearish they need to get while market folks are trying to figure out just how bullish they should get. From my perspective, less macro-related volatility could help stocks build on their October gains heading into year end. But there isn’t much evidence of that taking place just yet. With that, the inability of the recent rally to show sustainable strength (and more new highs than new lows) suggests caution remains warranted.
Our Weight of the Evidence Dashboard fills in the details and includes a few charts that have our attention heading into November.
As technicians, we pride ourselves on never being dogmatic in our approach. If new data that invalidates our initial thesis presents itself, we're always willing to flip our approach.
Yesterday, we wrote that Ethereum testing a significant support zone suggests this rally is mean-reverting in nature. In that same breath, though, we noted that it's wise to treat every chart on its own merits.
If you adopt an overly broad picture of markets, you'll often miss some of the most straightforward trading opportunities.
With all that said, a few names are shaping up nicely in this tape.
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.
Welcome to Under the Hood, where we'll cover all the action for the week ended October 28, 2022. This report is published bi-weekly and rotated with our The Minor Leaguers.
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.
Beyond the mega-cap earnings-related blow-ups of last week, the rally off of the mid-October lows quietly gained strength. At Friday’s close, more than 55% of S&P 500 stocks were trading at new 20-day highs. In our work, that is a breadth thrust - the first since July and only the second since June 2020.
More Context: After stocks were uncharacteristically weak following the July breadth thrust, investors may be more cautious about embracing the latest signal. In this environment it is entirely possible that breadth thrusts are more evidence of volatility than strength. Over the course of my career I have tended to “trust the thrust”, but also believe it is a case of “thrust, but verify.”
Today was a nice consolidation day, with the indices just chopping around. If the indices can continue to trade sideways, we can hopefully work off overbought levels.
I'd like $SPX 3,835 to hold if this market wants to trend higher.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Insurance Claims a Leadership Role
The Equal Weight SPDR Insurance ETF(KIE) just closed at its highest level since April. One thing we know about relative strength is that the stocks and indexes that hold up best during bear markets tend to be the first to make new highs when the selling pressure subsides. We think this group will continue to outperform in the future as it completes a failed head & shoulder top and is only 3% from fresh all-time highs.
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.
