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This month’s Video Conference Call will be held on Tuesday July 5th @ 6PM ET. As always, if you cannot make the call live, the video and slides will be archived and published here along with every other live call since 2015.
Is there a change in trend with the most recent bounce bank in the indices? No.
Are some areas of the market doing better than others? Yes.
Are we here to discuss one such sector today? You bet we are!
We've been pounding the table about the strength that we've been noticing in the Auto space for over a month now. With that trend becoming more and more clear, we have a few more names joining the leaders. The Auto sector is exhibiting strengths that cannot and should not be ignored. Read on to know more!
First up, let's take a look at the index chart and focus on the levels here. 10,400 has acted as a crucial zone of support during the past five months of whipsaw moves in the market. The index continued to hold on to these levels even as other sectors were giving up on their floors without a fight. That was our first sign of relative strength.
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.
Looking for signs of strength, not just absence of weakness.
Burden of proof is on the bulls to show that strength can persist.
At this point, we cannot know whether the current environment will ultimately end up bearing more than a passing resemblance to the 2008/09 financial crisis. There are, however, enough similarities between now and then that the comparison is worth considering.
Consider what we are seeing from a price perspective and across a handful of other indicators:
Welcome back to our latest Under the Hood column, where we'll cover all the action for the week ended June 24, 2022. This report is published bi-weekly and rotated 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.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Risk Assets Holding on by a Thread
Risk assets have been under consistent selling pressure for some time now. The Russell 2000 and Bitcoin are both excellent examples of the damage that’s already taken place. Both are holding on by a thread at crucial support levels. As you can see in the chart, for Bitcoin, the 2017 highs around $20,000 are the level we're watching. For small-cap stocks, the line in the sand is at the 2018 and 2020 highs around 171.
If the Russell 2000 and Bitcoin continue to hold these key levels, things are likely improving for stocks and cryptos more broadly. However, if they violate their respective support levels, we have to anticipate increased volatility and another leg lower for risk assets.
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.
I'll cut right to the chase: JC put out a piece this morning highlighting the relative outperformance of the Healthcare space.
The XLV sector ETF for the space has more or less been consolidating sideways as the broader markets sold off, and one of the bellwethers here is already making new all-time highs. Feels like we'll start to see more candidates here begin to participate as well.
Last week's letter addressed the asymmetric opportunity being presented to long-term crypto investors.
By most measures, the crypto capital markets are in extreme oversold conditions. Using on-chain data, we demonstrated how Bitcoin market participants are closely approaching their maximum pain thresholds.
For long-term holders, periods such as these represent advantageous places to more aggressively average into spot positions.
Over this time frame, we strongly believe that we'll look upon this period as a great time to have accumulated Bitcoin and other major cryptocurrencies.
But this raises yet another question: What does the short-term outlook look like?
As any technical analyst would be quick to announce, long-duration assets and cryptocurrencies have been in an assertive downtrend as central banks have moved into a tightening regime following inflationary pressures.
But these bear markets often see swift and aggressive counter-trend rallies.
