Key Takeaway: Speculative excesses have been unwinding for a year and that has taken its toll on investor sentiment. The overall mood is characterized by a lack of optimism rather than rampant pessimism. This is consistent with the grind lower in many areas of the market since new highs peaked in February 2021. The damage done beneath the surface has only in recent months impacted the indexes, but if that impact intensifies a further expansion in pessimism would not be surprising. Benchmark 60/40 portfolios have gotten off to their worst start in a quarter century and our strategic positioning indicators continue to point to a high risk backdrop. If there isn’t much of a reward at the end of the volatility rollercoaster, passive participants may start to actively question whether the ride was worth it.
Remember back in the day when crypto was its own thing?
It didn't matter what the Dow, copper, or bonds were up to because Bitcoin and crypto did whatever they wanted.
That ain't the case anymore.
Today's market is entirely different, with far more sophisticated drivers than just a few years ago.
Crypto and risk assets have become heavily correlated. And, in some respects, Bitcoin's really just been somewhat of a beta chase ever since the onset of the pandemic.
Last month, the 30-day correlation between the Nasdaq 100 and Bitcoin was an incredibly positive 0.90. They've traded in lockstep with each other.
So it's fair to say that if you're a crypto trader, it's paid to watch the macro environment.
In Major League Baseball, the 40/40 Club is an exclusive group of players who are the only ones to have achieved both 40 home runs and 40 stolen bases in the same season.
The first player to achieve this milestone was Jose Canseco in 1988 as a member of the Oakland A’s – back during the “Bash Brothers” days with his steroids pal Mark McGwire.
Since then, only three other players have joined this list: Barry Bonds (1996), Alex Rodriguez (1998), and Alfonso Soriano (2006).
Here at All Star Charts, we’ve achieved a little bit of our own 40/40 dynamic as JC celebrated his birthday this week and joined me in the 40+ crowd of awesomeness. Perhaps it’s not quite as exciting as crushing home runs over the wall or swiping second base against catcher Yadi Molina. But I like to think it’s cool in its own way.
Flat-footed Fed hurrying to get policy in harmony with reality
German yields paving the way for US yields to exceed expectations
Higher yields adding volatility, but Fed to focus on evidence of stress
Developments in and around the Ukraine are dominating the headlines, but history shows that market turmoil brought on by geopolitical events tends to be short-lived. More meaningful and lasting developments are coming from the bond market as it adjusts to a Federal Reserve that appears intent to aggressively bring policy more in line with inflation. The Fed needs to catch up to inflation (and economic fundamentals generally) and the bond market needs to catch up to the Fed.
The last time we discussed altcoins, we mentioned we were tactically shorting overbought names bouncing into supply while eyeing more intermediate-term long positions.
This approach paid off, with names like Gala $GALA and Sandbox $SAND succumbing to the selling pressure, booking a quick profit.
Moving forward, as we laid out in yesterday's note, the market's in a state of balance, and we have a neutral outlook.
This is the time when we're closely monitoring names showing leadership, waiting patiently for setups to solidify.
This will be a short and sweet note with three long trade ideas.
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.
In last Monday's note, we discussed a variety of data points suggesting Bitcoin was in the beginning phases of carving out a tradable bottom.
We also mentioned that we anticipate a few weeks of sideways price action ahead of further upward price discovery. Since then, we've seen a handful of developments paint a more neutral picture.
Unlike spot prices, futures never flipped to buying and are still in a fairly strong regime of selling via calendar futures.
There's also been a gentle deleveraging of open interest and an increase in defensive positioning, as investors have been withdrawing capital off the back of geopolitical volatility.
Meanwhile, legacy markets continue to act as a headwind. Bitcoin and equity trading correlations remain high, and it's yet to be seen whether Bitcoin can front-run equity weakness, like what took place in October last year.
This all takes place as Bitcoin remains above our risk level of 41,000.
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.
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.
