From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
Currency markets are reacting to the war that’s broken out in Europe.
In the past four trading sessions, the Russian ruble has dropped more than 1,000 pips against the US dollar.
And, with fear growing that these initial days of fighting will turn into a protracted conflict, weakness is striking the euro as well.
Let’s take a look at the EUR/USD cross and outline the levels we’re monitoring in the coming weeks and months.
Here's a daily chart of the EUR/USD going back to the pandemic lows:
After completing a large distribution pattern last September, the EUR/USD pair has been consolidating for the past several months and trading in a range between 1.1483 and 1.1121.
Since November, the market has been grinding lower, and most cryptos find themselves in 50%-plus drawdowns.
There's no other way to put it: The altcoins have been bruised and battered.
It's at these stages of the market cycle that we analyze the names in the shallowest drawdowns.
When everything else is down the dumps, the few names that have bucked the selling pressure, and are even pressing against new highs are likely your next leaders when the broad selling subsides.
This is exactly what we've done.
We've filtered our universe of cryptos (all coins above $500M in market cap) by their drawdown from 52-week highs as well as their respective performance from Bitcoin's January lows and since war broke out between Ukraine and Russia.
The market has been a mess and off late the geopolitical turmoil has been playing havoc as well. Metals have shown strength over the past week and that has been our area of focus. This week's long trade comes from the Metals segment.
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.
You can either profit and help your family because of higher energy and commodities costs.
Or you can complain about it.
I've been through enough cycles at this point, that there will always be that group who just complains and complains.
But for those of you who are proactive, and took advantage of the trends in place, then there's really nothing to complain about.
To the contrary, these are great days! Some of the best days, in fact.
It's funny, because you have those people who bought into that scam of so called "passive" investing. It's ridiculous that some investors still fall for that old trap.
Just because you buy and hold major indexes doesn't make you a "passive" investor. You have to be really really really bad at math to believe that.
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.
We recently decided to expand our universe to include some mid-caps…
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.
The way we did this is simple…
To make the cut for our new Minor Leaguers list, a company must have a market cap between $1 and $4B.
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 also weed out hedging activity and ensure there are no offsetting trades that either neutralize or cap the risk on these unusual options trades.
With VIX closing the day today north of 30, I'm still on the hunt for premium selling opportunities.
So as always, I perused my list of the most liquid options ETFs and found an opportunity where premiums are elevated and the chart suggests some rangebound trading action is likely over the next few weeks.
The day got away from me so I didn't get a chance to put it on yet, but I've identified a delta neutral candidate that I'll be looking to enter in the early going tomorrow AM.
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.
In an effort to fight inflation, the Fed is likely to accept volatility but will be wary of stress.
Equity market trends are deteriorating.
Preserve capital and sanity - market doesn’t hand out participation medals.
Offsetting this likely need for more aggressive tightening is the potential for sanctions to strain the financial system in unexpected ways. When liquidity gets disrupted signs of stress can emerge. A widening in high yield spreads and/or a breakdown in the ratio between high yield bond and Treasury ETFs would be evidence that volatility is morphing into stress. That could slow the pace at which the Fed tightens and in the process worsen the problem of inflation.
