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.
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.
We expanded our universe to include some mid-caps.
To make the cut for our Minor Leaguers list, a company must have a market cap between $1 and $4B.
The largest insider transaction on today’s list comes in a Form 4 filing from Allied Physicians of California.
The firm reported a purchase of roughly $9.2 million in Apollo Medical Holdings $AMEH. It now owns about 11 million shares for a total ownership interest of 19%.
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.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Structural Damage For Smalls
Equities all around the world are having a brutal start to the summer as selling pressure spreads across the board. All of the US major averages are completing tops and registering new closing lows.
The Small Cap Russell 2000 Index has been the weakest as IWM is currently testing a critical support zone at its 2018 and 2020 highs. We will be watching closely in the coming days to see how prices react to this area of former resistance turned support.
Bulls want to see this level hold. However, if price violates these former highs, we have to anticipate another leg lower and increased selling pressure for stocks more broadly. Seeing more and more risk assets fall back below their 2018 and 2020 highs is a big feather in the hat for bears. The S&P 500 is still about 7% above its 2020 highs of 3400.
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.
We're going on over 16 months of this so far, and counting....
Remember, stocks peaked in February of 2021, meaning that was the best things were for stocks during this cycle. And it's been a slow deterioration ever since.
The first stocks to peak are what we refer to as the "Culprits". Every bear market has that group that you can point to as the leaders to the downside.
We came into 2022 with a close eye on those Culprits (see here) and we've continued to monitor their declines.
If you haven't been following along, those groups include Chinese Internet, Biotechnology, the IPO stocks, and of course Cathie Wood's ARKK Funds, who have become the poster child for this latest bubble.
But a funny thing happened 6 weeks ago - they all stopped going down.
And the leader to the upside has been Chinese Internet (yes you read that right, I had to run the numbers multiple times to believe it myself).
Naturally, after a drawdown like the crypto markets have endured, this is the part of the cycle where everyone tries to call a bottom. Of course, we don't need to discuss the dangers of this treacherous journey of bottom-calling where many traders eventually meet their fate.
There is perhaps no worse setup for active traders than in environments like these.
Times like these are when volatility is rampant, emotions are elevated, and bad decisions are made.
But, there are two antidotes:
Don't trade, be patient, and buy when upward momentum returns.
Dollar cost-average in the value zones.
For the most part, we continue to hammer down the first point. Going back to December, we've been preaching patience and high cash positions.
But today, we want to address the potential credence in the notion of Bitcoin dollar-cost-averaging in the context of this recent selloff.
One of the arts of discretionary trading is practicing the ability to change our minds when facts or circumstances change.
We are not wed to following a rule rook.
There is no requirement to do "x" when "y" happens.
Of course, few discretionary traders succeed without some set of rules that are more like Best Practices. The rules may be fluid and change with market conditions, but there are almost always some guardrails in place. If for no other reason than to protect ourselves from ourselves.
The broad market selloff these past couple weeks has caused us to defensively roll a bunch of our short puts, which has eaten into our overall net positive cashflow. This will happen from time to time. But it definitely has spurred me to update my guardrails.
As the June monthly options cycle rolled off the board this past week, this makes July monthly options the "front month" options. As such, any new positions we'll be adding starting this coming week will be in the August monthly expiration series.
