Defensive areas we would expect to underperform in the current environment such as utilities and REITs are actually outperforming.
And the names we would expect to do well – specifically banks – can’t seem to catch a bid on either absolute or relative terms.
This is concerning from a broader intermarket perspective. But it’s not the complete story.
While our stock market ratios are not supportive of higher rates, when we look within the bond market, we’re seeing the opposite.
Not only is there a synchronized global rally in interest rates, but the intermarket evidence from our bond market ratios supports this action and indicates a healthy degree of risk appetite.
Today we're going to highlight one of those bond market ratios – high-yield vs. investment-grade debt.
Someone recently asked me why I pursued the CMT (Chartered Market Technician) designation.
Was it for personal growth or to open up job opportunities? To be honest, fifteen years after the fact it's difficult to fully recall every motivation that went into my decision. I can, however, clearly see the implications of that decision.
In many ways, this is similar to what happened when my family and I moved from the Milwaukee suburbs back into the city itself. We had our motivations and expectations, but none of that could have prepared us for what we have experienced in the wake of that decision.
It was 2008 and we were in the depths of the financial crisis. Plenty of uncertainty was in the air. We sold our old house literally days before Lehman went under and the financial system seized up. We thought we were just buying a house, one that our young family could grow into. It had "good bones" (as they say) but had been ignored for some time and needed (still needs) a lot of loving attention.
In the activist world, Bill Ackman announced that Pershing Square exited its position in Netflix $NFLX, as the stock was plunging lower by 35% on the heels of a disappointing earnings report.
It’s estimated that the hedge fund lost over $400 million on the position, which was just purchased back in January.
If you've ever been deep in the trenches slinging cryptocurrencies, chances are you're well aware of the infamous liquidation cascade.
For some traders, the thought will send shivers down their backs.
To others, it represents one of the most profitable asymmetries in supply and demand.
What's a Liquidation Cascade?
The Chicago Mercantile Exchange (CME) is the largest and most sophisticated derivatives exchange for several traditional financial instruments and Bitcoin futures contracts. But there are stringent rules bounding these contracts:
Each contract is 5 BTC (currently just over $200,000).
The market is only open Monday through Friday.
Clients tend to have a good relationship with a broker that's allowed to trade on the CME.
These rules are essentially a risk-mitigation strategy.
In the case of liquidations, if the account reaches negative equity before the liquidation is finished, the trader is liable for the negative amount.
The Outperformers is our newest scan that pinpoints the very best stocks in the market. It’s the fastest, easiest way to find quality names that are primed for major moves.
The goal is that as the market rally progresses, the sector rotation within the market will reflect in this scan. So while our Top/Down Analysis helps us with the broader view of the market, this Bottom/Up scan makes sure that we catch the slightest change in sentiment.
When investing in the stock market, we always want to approach it as a market of stocks.
Regardless of the environment, there are always stocks showing leadership and trending higher.
We may have to look harder to identify them depending on current market conditions… but there are always stocks that are going up.
The same can be said for weak stocks. Regardless of the environment, there are always stocks that are going down, too.
We already have multiple scans focusing on stocks making all-time highs, such as Hall of Famers, Minor Leaguers, and the 2 to 100 Club. We filter these universes for stocks that are exhibiting the best momentum and relative strength characteristics.
Clearly, we spend a lot of time identifying and writing about leading stocks every week, via multiple reports. Now, we're also highlighting lagging stocks on a recurring basis.
Key Takeaway: That investors are in a dour mood is not in doubt. We just saw the fewest bulls on the AAII survey since 1992 and the University of Michigan Consumer Sentiment Index is about as low as it has ever been. This week has brought news that US equity ETF’s have had outflows in three of the past four weeks. If this is just a pause in what some have called the persistent bid fueled by a move toward index investing, then this too is a bullish development. If, on the other hand, it represents the early stages of passive equity investors becoming disgruntled and looking for other options, then consider it a meaningful increase in equity market risk. Time will tell, but price and breadth improvements would help assuage these concerns. Either way, pessimism is a condition that needs a catalyst to spark a rally. It’s a pile of firewood, but for now it remains unlit.
Don't take my word for it. Check it out for yourself.
Sentiment has only been this bearish four times over the last 40 years: Coming out of rampant 1970's inflation, the Savings & Loan crisis of the early 90's, the Great Financial Crisis of 2008-09, and the "Fiscal Cliff" circa 2012.
Do you remember those times?
And you see what happened in the S&P 500 after, right?
Is history going to repeat itself? And if so, how do we protect ourselves and our portfolios from the "risk" of being underinvested if that happens?
In a tape as messy is this, it pays to be patient and only focus on A+ setups.
The names emerging from bases on solid volume are the ones you want to lean on. By slinging names in messy ranges, you'd only be asking to get whipsawed.
We can't help but notice the relative strength coming out from ApeCoin $APE and STEPN $GMT, which we mentioned a few days back.
Both have real nice shapes emerging from their post-ICO bases:
Looking tactically, they both offer us some decent risk-versus-reward for a speculative bet.
The only insider buy on today's Hot List is a Form 4 filing by the CEO of Solo Brands $DTC, who reported a purchase of roughly $486,200.
In the options market, there was bullish options activity in the social media platform Pinterest Inc $PINS and in the retail pharmacy operator Walgreens Boots Alliance Inc.
