As we’ve said before, one of the big characteristics that often differentiates good traders from mediocre ones is the ability to sit out when necessary.
Correlations to weak equities remain highly elevated. We’d like for those to dislocate before getting overly optimistic in the near term.
When it comes time to put money back on the table again, it’ll be obvious. Otherwise, we’ll continue being patient.
The market is messy and continues to remain so. There are only a select few names that are displaying the strength with consistency. In a messy market, that's the best area to focus on.
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.
With the S&P500, Dow Jones Industrial Average, Nasdaq 100 and Global 100 Indexes down in recent weeks, the Dow Jones Transportation Average has been up each of the past 2 weeks.
And Transports started out this week positive once again:
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.
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.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Selling Spreads
Speaking of leaders, even the strongest stocks have come under pressure in recent sessions. There was no good place to hide toward the end of last week as stocks were being sold indiscriminately. We saw the start of this on Thursday as the market leaders came under serious pressure. Friday, that volatility accelerated as investors shrugged off record earnings numbers and took profits across the board.
Over the past few months, we’ve seen money rotate into defensive groups or growth stocks in sessions where cyclical stocks have sold off. That wasn’t the case last week as the market was a sea of red.
The frenetic trading activity that defined the end of last week appears to be continuing into today. And we're seeing VIX north of 30. If I liked selling premium last week, I should love it today, right?
Well, it just so happens we've got an ETF with pricing in June options that is giving us a lot of wiggle room to sell premium into. So we're going to do just that, betting on consumers to chill.
This morning, the big market news is that Twitter $TWTR and Elon Musk are getting close to striking a deal for the eccentric billionaire to take the company private.
This is a dramatic turn of events from just last week, when the company announced it had adopted a “poison pill” to ward off Musk’s takeover efforts.
The latest reports suggest a deal could be finalized as early as today.
