Mean reversion is a universal element of the world we live in.
Reversion to the mean is a statistical phenomenon stating that the greater the deviation of a variable from its mean, the greater the probability that the next measured variation will deviate less.
In other words, an extreme event is likely to be followed by a less extreme event.
In financial markets, mean reversion is everywhere. This is especially the case in bear markets when prices dramatically rally following prolonged periods of sustained weakness.
As John Roque, one of the GOATs of technical analysis, would say, "We’re not in a reversion to the mean business. This is instead a reversion beyond the mean business."
Specifically, asset prices retracing to their statistical average isn't the rule, it's the exception. Rather, in most cases, asset prices will often overshoot their "averages."
With crypto markets bouncing over the last week, it raises the question, is this just yet another mean reversion rally, or does this move have some legs?
People would even complain that it was only 5 stocks driving market returns.
Do you remember how hilarious that was?
Good, because it's so much funnier now.
Get this, those same people complaining that only 5 stocks were driving the market higher are now complaining that those 5 stocks aren't participating.
Market returns are currently being driven by all the other stocks. Those 5 big massive ones are doing their very best to hold the market down, but it's not working.
Investors are buying stocks, whether you like it or not. And they're buying the smaller ones at a much faster rate than their larger-cap counterparts.
Look at the Small-cap Russell2000 hitting new Year-to-Date highs vs the Large-cap S&P500.
And of course Small-caps are also hitting new 16-month highs relative to the Nasdaq100:
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I'm glad to hear how well you guys are doing in this environment.
But keep in mind that not everyone looks at the market the way you and I do.
Some people out there think the Dow Jones Industrial Average is beneath them.
Some people like to pretend to be smart and wait for computers to tell them if stocks are going up, instead of just counting.
Price weighted indexes don't seem to be good enough for some of their boujee lifestyles.
Fortunately, for us simpletons who are only here to make money, we see the Dow Jones Industrial Average rallying for a 4th consecutive week, finishing up the greatest October of all time.
It doesn’t look like that will change any time soon. However, I doubt energy contracts will be left behind.
Let’s run down the most actively traded contracts for crude, gasoline, and heating oil. First, crude oil:
The December contract has chopped around a key level of former support at 85. Despite the sloppy nature of the chart, I don’t hate a long position here. But that's only if it’s above 85.
From the Desk of Steve Strazza @Sstrazza and Alfonso Depablos @AlfCharts
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.
