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.
From the Desk of Steve Strazza @sstrazza and Alfonso Depablos @Alfcharts
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.
Welcome back to our latest Under The Hood column where we'll cover all the action for the week ended November 25, 2022. This report is published bi-weekly and rotated on-and-off with our Minor Leaguers column.
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.
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 this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Not All Indexes Are Created Equal
While the Dow (DJI) has rallied nearly 20% off its October lows and retraced more than 62% of its max year-to-date drawdown, the Nasdaq 100 (NDX) is only about 10% above its lows, representing a roughly 20% retracement.
This disparity in index performance speaks to the relative strength from blue chip value stocks as well as the relative weakness from technology. Until we see evidence of this changing, we want to remain overweight value and underweight growth.
Our longer-term risk indicator has been in the Risk Off zone since the beginning of the year. Successive rally attempts have taken it closer and closer to a Risk On signal, but so far it has been unable to break through.
No matter what the market, geopolitics, weather, congress, The President, retail demand, the news cycle, or even the price of the commodity itself throws at oil stocks, they just... keep... winning.
These are not trends I like to fight.
And it seems options markets aren't willing to fight it either as today's trade is in an oil sector bellwether that is now pricing in the lowest volatility in over 9 months as the stock flirts with post-Covid highs.
We remain patient in the face of this price action.
In fact, it's been many months since we've expressed any bullishness over long time frames.
At heart, we're trend followers. We're not here to stand in the way of the market. Rather, we want to keep our approach simple and ride the ebbs and flows of the tape to make our money.
Unless you're looking at your charts upside down, it's been difficult to ignore what's been happening in this space, be it in recent weeks or over the last year.
In the aftermath of the collapse of FTX, more parties will be exposed. Grayscale refuses to prove its reserves, and WETH has recently lost its trading peg to ETH.
In the parlance of Mr. Buffett, only when the tide goes out do you discover who's been swimming naked.
