Key takeaway: From a breadth perspective, the market is challenged right now by a scarcity of new highs. From a sentiment perspective, it has to contend with a scarcity of bears. Options data shows complacency even as risk appetites remain diminished. Bears on both the II and AAII surveys are near their lowest levels since 2018 and ETF inflows remain elevated. The household equity allocation tilt (versus bonds) is its most extreme since 1972. Stocks are loved, bonds are hated. All of this is very well summarized by our chart of the week from the Bank of America Fund Manager Survey which shows virtually no one is expecting (or prepared for) market volatility in the months ahead.
What we do here is take a chart that’s captured our attention, and remove the x and y-axes as well as any other labels that could help identify it.
This chart can be of any security, in any asset class, on any timeframe. Sometimes it’s an absolute price chart, other times it’s on a relative basis.
It might be a ratio, a custom index, or maybe the price is inverted. It could be all three!
The point is, when we aren’t able to recognize what’s in front of us, we put aside any biases we may have and scrutinize the price behavior objectively.
While you can try to guess the chart, the point is to make a decision…
So, let us know what it is… Buy, Sell, or Do Nothing?
This is one of our favorite bottoms-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.
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
The US Dollar trading at key levels against a significant amount of Developed and Emerging Market currencies is the major theme in Currency Markets right now.
The GBP/USD is challenging an area of resistance that acted as support for over two decades but has been a barrier for prices since the Brexit vote almost 5 years ago.
The USD/CHF is on the verge of completing a massive 9-year top.
The USD/ZAR just violated critical support at a decade-long trend line.
And USD/CAD is currently attempting to complete a 5-year double top... with a pattern that looks strikingly similar to that of the DXY Index itself.
These crazy Bitcoin "HODL'ers" and "Laser Eyes" people must be going nuts right now.
Apart from a few exceptions in shorter time frames, there's been a painful lack of real opportunities floating around in this space recently, both on the long and short sides.
Breakouts are failing, and breakdowns aren't doing much either.
Legendary trader Paul Tudor Jones once said that "Markets only trend about 15% of the time, the rest of the time they move sideways."
As aggressive as trends can be in Crypto, we need to respect that markets simply need to repair their damages and reload for the next move.
In the context of Bitcoin's 200-day moving average, once price slips below it, it tends to stay below for some time - especially after prolonged periods of it remaining above.
The market has a mind of its own. Who would've thought that Reliance Industries would break out on a messy market day?
If you've been in the market a while, then you know that Reliance can single-handedly decide the direction of the market. Such is the power of this stock!
So what do we have here? Well, after a considerable bounce over the past month and a half, Reliance has managed to breach an area of resistance. And we're here to talk about the implications of that.
Key Takeaway: Index level highs lack support beneath the surface. Bonds rally in the wake of hot inflation data. Households own relatively few bonds, the Fed has never owned more Treasuries.
Health Care moved up three spots in this week’s relative strength rankings, but has yet to crack the leadership group. Industrials sector continues to slip in terms of relative strength.
Both our sector and industry group relative strength studies show Energy and Real Estate as areas of emerging leadership across the size spectrum.
With Consumer Staples and Utilities still near the bottom of the rankings, it’s hard to make the case for a decisive shift toward defensive leadership in the equity markets.
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.
The latest Young Aristocrats report is out and as always, there are some great opportunities setting up there. These are stocks with tremendous dividend growth consistency that are also setting up for bullish price action. How can investors not love these setups? Win from the price appreciation, and get paid while you wait in the form of dividends. Yes, please!
The opportunity that best caught my attention today is an all-time high breakout in a niche corner of the market.
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 context of the big picture 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.
Our Top 10 report was just published. In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Outlook For Yields Turns Lower
Despite a historic CPI print, yields are unanimously pointing lower, including other vital metrics from different asset classes. Both the Copper/Gold and Regional Bank/REIT ratios have been pointing down for some time, and the all-important High Yield/Treasury Bond spread is shifting to a more bearish tilt for risk assets. It’s pretty clear right now that either the Bond market disagrees that long-term inflation is here to stick around or disagrees with the stock and commodity market on how it’ll affect.
This is where a lot of our mixed signals are coming from right now. Risk assets and commodities, particularly Crude Oil, are pointing to further upside for risk, while the Bond market is beginning to raise some alarm bells. And if we know anything about the Bond market, we consider it smart money. Watch this space...
If (and this is a big if) this is a tradable low for the Cryptocurrency space, this is a critical time and place for us to see new leadership emerge. So far, it's certainly not coming from down the cap scale.
