From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
The US Dollar Index $DXY resumes its relentless march higher.
But the full story surrounding the dollar’s dominance is a bit more complicated.
Lately, we’ve been pounding the table about the narrow scope of the DXY, as 83% of its weightings come from just three currencies – the yen, the pound, and the euro.
All three continue to lose ground versus the dollar, and this is exactly what's driving the rally at the index level.
While this remains the case, we’re starting to see USD strength expand beyond the major components of the DXY. We're also seeing some nice long-term patterns materialize that favor the US dollar.
A great example is the rounding bottom in the US dollar-Korean won cross – USD/KRW.
Participating in strength so far in 2022 provides us with some operational flexibility in our Dynamic Portfolios. But in a market with relatively narrow participation, it can be challenging to find ways to move from strength to strength without becoming too concentrated. That said, we are reducing exposure to some of the strongest areas of the market - taking gains more than expecting weakness. We are finding opportunities to maintain our current exposure to the market, increase our diversification and remain consistent with the message of caution coming from our risk indicators and the weight of the evidence. This remains an environment that favors a dynamic over passive approach and one in which being tactical and cyclical enhance strategic exposure.
There are times when you need to trade like a pig. With these macro conditions, now is not that time.
In those roaring crypto bull markets we've all come to know, bravery is more important than brains. But, in periods like these, traders who are patient get rewarded.
When the market inevitably improves, you can get back to making money instead of picking up pennies to recover from big drawdowns by avoiding the mental hurdle of overtrading.
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.
There's that old adage that there are only three short periods each year to make money. Or consider the classic Paul Tudor Jones quote that “markets trend only about 15 percent of the time; the rest of the time they move sideways.”
We can't reiterate this enough; there's a huge difference between looking for a setup and seeing one.
If you go into the market with preconceived notions about how things should be instead of seeing them for how they really are, you might as well go take a punt on the dish lickers.
We alluded to the strong move that we're observing in the Fertilizers and Chemicals space. Today we're here to take a look at one such stock that just broke out above its resistance and looks good to go!
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.
Welcome back to our latest Under the Hood column, where we'll cover all the action for the week ended April 15, 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.
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.
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.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Tech Weighs Heavy on US Stocks
US equities have outperformed their global counterparts for the better part of the last decade. This is largely attributed to the vast differences between the weighting and composition of US and international markets – mainly, the heavy weighting toward technology in the US and the relative absence of tech outside the US.
The overlay chart of Tech vs. the S&P 500 and the S&P 500 vs. the ACWI All World Index ratios tell the story. Tech dominance in the US strongly correlates with US dominance over global markets. With tech taking the brunt of the recent selling pressure, it calls into question the continued outperformance of US equities. This reiterates the possibility that what has worked for the past decade may not work in the years that lie ahead. Position accordingly…
