Late last week, Speaker of the House Nancy Pelosi reported the purchase of a variety of deep in-the-money call options in Apple $AAPL and Microsoft $MSFT.
The contracts expire in March and June of next year.
Over the past few years, Pelosi has made some very profitable trades using in-the-money calls in names such as Tesla $TSLA and Nvidia $NVDA.
There are a handful of stocks that are displaying signs of early strength as the market moves sideways. Today we're going to look at one such stock from the Financial Services sector.
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.
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.
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.
The Impact of a Higher Dollar
We’ve talked a lot about the implications of a higher dollar. Long story short, it means lower prices for risk assets. This includes US stocks, commodities, and especially international stocks. They should all enjoy a tailwind if the dollar is to fail and roll over at these former highs.
Overlaying growth stocks such as the ARK Innovation ETF with the Dollar Index gives us a nice visual of this relationship. Look at the large base in DXY that has formed since its 2020 peak. If we were to invert that DXY chart it would fit seamlessly with the distribution pattern in ARKK, shown below. The two have a very strong negative correlation.
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.
With everyone so certain about the upcoming recession, even Cardi B, why don't we take a step back and look at what the actual prices of stocks are doing.
You can see here that the Dow Jones Industrials and Dow Jones Transports have done absolutely nothing for over a year.
For perspective, stocks first peaked in January of 2018, then went nowhere for 3 years, and finally broke out:
And until new information presents itself to get us looking elsewhere, the strongest names, best bases, and most impressive relative strength continue to be found in the energy space. Who am I to fight the facts?
Today's trade is in an Oil & Gas company that has been in an unrelenting uptrend since mid-2020 that is showing no signs of reversing.
