From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
The unwind is on in the aussie!
After accumulating a historic net-long position last fall, commercial hedgers are scrambling to cover. Over the past four weeks, the smart money has trimmed its long exposure to roughly half of what it was.
This is reflected in our most recent Commitment of Traders Heatmap, which you can view here.
When positioning flips at extremes – like we’re seeing now in the Australian dollar – we want to look for opportunities to ride the emerging trend. In other words, we want to bet in the direction that commercial hedgers are currently unwinding away from.
In the case of AUD, they recently had a historic net long position. As such, we’re looking for bullish technical characteristics to see if a long setup makes sense here.
It just so happens that things are really coming together for the aussie chart lately. We love when technicals and sentiment line up like this.
Pace of tightening likely to be more than twice as fast as last cycle
Bond yields at multi-year highs, rising at fast pace in a decade
After waiting and watching as inflation soared to its highest level in 40 years (and got there at the fastest pace in nearly three-quarters of a century), the Fed now finds itself behind the curve and needing to accelerate quickly. Post-mortems can be done later, and future historians can write papers about how the Fed was too focused on labor supply and supply chains and not focused enough on money supply as it delayed lift-off. Our focus is not on those “why’s” but on these “what’s”: what is the path for rates going forward and what is the impact of this for the stock and bond markets.
In yesterday's note we outlined our new tactical approach to the crypto market.
For those who missed it, after playing defense and remaining patient on the sidelines for many months, we're now seeing signs conducive to Bitcoin resolving higher from its multi-month consolidation.
Alongside this, we're noticing a ton of great setups in the alts.
It's been a while since there's been such a breadth of good setups, which can only be seen as a positive development.
As the market takes a pause following four straight up days, options traders are using puts to fade the bounce in UP Fintech Holdings $TIGR and HP $HPQ.
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.
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.
Welcome back to our latest Under the Hood column, where we'll cover all the action for the week ended March 18, 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.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
A Reversal In Risk
Not only are the most battered areas of the market digging in at logical levels of support and resolving higher, so is high-yield debt relative to Treasuries (HYG/IEI). This crucial ratio is an inverse illustration of credit spreads as we’re comparing the bond prices instead of the yields. HYG/IEI putting in a potential failed breakdown and resolving higher speaks to a reprieve in market stress and bodes well for risk assets. It’s no coincidence that we’re seeing similar action at the index level as the S&P 500 is back above its January lows. Bulls want to see this ratio catch higher in the coming weeks as this would support a tradable low and fresh rally for stocks as risk-seeking behavior re-enters the market. There is still some work to do, but we’re moving in the right direction.
