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. What remains is a list of stocks that large financial institutions are putting big money behind… and they’re doing so for one reason only: because they think the stock is about to move in their direction and make them a pretty penny.
We’ve already had some great trades come out of this small-cap-focused column since we began rotating it with our flagship bottom-up scan “Under The Hood” earlier this year.
We recently decided to expand our universe to include some mid-caps…
For about a year now, we’ve focused only on Russell 2000 stocks with a market cap between $1 and $2B. That was fun, but we think it’s time we branch out a bit and allow some new stocks to find their way onto our list.
Key Takeaway: Mid-caps lead the way as new highs lists expand. Breadth heading in a positive direction but still has work to do. Market rewarding stocks that beat earnings expectations, punishing those that miss.
The Energy and Financials sectors continue to be areas of strength on both a relative and absolute basis. They are the top ranked sectors in our relative strength work and finished last week at news highs.
Real Estate has rebounded in relative strength and is in the third spot overall. At the small-cap and mid-cap level, Real Estate finished at new highs last week.
Consumer Staples, Utilities, and Health Care remain the weakest sectors.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Looking For Confirmation
Many markets and major indexes have pressed back to their year-to-date highs in recent weeks. How price reacts at these natural levels of overhead supply will be the next key piece of information we have. We’ve already seen a handful of leadership groups like Financials and Energy reclaim these resistance zones. Meanwhile, many major indexes like the S&P rallied back to their highs last week and paused. One thing worth noting is that momentum has been waning and making lower highs despite the higher highs from price since April. An overbought RSI-14 reading would go a long way in confirming new highs at the index level.
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.
(While on vacation until Oct 26th, I’m going to be sharing some anecdotes on my favorite trading strategies: why I use them, when, and how I manage them once they are on.)
A Vertical Spread is one where you are long options at one strike and short an equal amount of options at another strike, both in the same expiration series. These can be done both for debits or credits, depending on whether you purchased the more expensive option (debit) or sold short the more expensive option (credit). And these can be done with either all calls or all puts.
But my favorite version of the vertical spread is a Bull Call Spread, where I purchase an at- or slightly out-the-money call and sell a further out-of-the-money call against it to lower my net purchase price.
This week we’re looking at a long setup in the Services sector. With the move in the week gone by, there are only a few pockets of strength to track. And this is one of them.
We retired our "Five Bull Market Barometers" in mid-July last year 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.
Over many years of doing this I've observed a few things.
One of them that stands out is how much more time investors spend focused on how much money they're going to make, and less time on what the market needs to do to prove them wrong.
You see, I don't care how high you think the stock goes. I want to know what the market would need to do to prove your thesis invalid.
That's way more important.
Any idiot can buy a stock that goes up. It's what you do with the stocks that don't do what you think they're going to do that separates the winners from the losers.
Our Hall of Famers list is composed of the 100 largest US-based stocks.
These stocks range from the mega-cap growth behemoths like Apple and Microsoft – with market caps in excess of $2T – to some of the new-age large-cap disruptors such as Moderna, Square, and Snap.
It has all the big names and more.
It doesn’t include ADRs or any stock not domiciled in the US. But don’t worry; we developed a separate universe for that which you can check out here.
The Hall of Famers is simple.
We take our list of 100 names and then apply our technical filters so the strongest stocks with the most momentum rise to the top.
Let’s dive right in and check out what these big boys are up to.
