From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge
Sideways has been the theme for most risk assets since they peaked in the first half of last year. Markets have become increasingly messy in the time since.
If we’re talking about US equities, the market is as bifurcated as it’s been in years.
All we mean by this is that depending on what group a stock is in, it could be in a nice uptrend, but it could also be in an ugly downtrend. Stocks and other risk assets are literally moving in opposite directions these days, and doing so with some serious momentum.
At the index level, you can see this split market reflected by trendless ranges.
When we look to our risk-appetite ratios and indicators for information, we’re not getting much as the vast majority are still stuck in the same ranges they’ve been in for the better part of 12-months.
So, risk assets are a mess and most of our risk indicators are also a mess. Makes sense, right?
This isn't a post about nuclear Armageddon or a survival guide for a post-apocalyptic world.
But it is about recognizing when something has ended.
In rare cases, we know when an end is coming and can try to prepare. This was the case with my son's final grade school basketball game. The season-ending tournament was on the calendar months in advance. But even still, there were a few tears when the final buzzer sounded.
In other cases, we might not know in advance that an end is coming, but can quickly recognize that it has arrived. Think about going home from the office for the last time as the COVID crisis was intensifying in Spring 2020. Few knew when they shut their computers down for the day that it would be weeks or months (if ever at all, in my case) until they returned. Though unexpected, that reality became obvious in short-order.
It's the sound of tilted traders getting chopped up.
It's a tale as old as time: people playing the market like it's trending, when it's nothing more than ping-ponging.
Price is in a really well-defined range, and there's no point getting hyped by any moves - up or down - before we actually get confirmation of a real break.
This approach of remaining completely neutral has done a great job of protecting us from the tilt of getting chopped up.
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.
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Benchmark rates around the world have been rolling over as uncertainty sweeps across markets.
Despite the growing pessimism among investors, global yields are digging in at critical levels and bouncing higher in recent sessions.
We discussed how international yields – particularly those in developed Europe – confirmed the new highs in US rates earlier in the year.
Today, we’re going to check in on some of those same yields and see if this is still a piece of confirming evidence for rates here in the US.
With the US 10-year hovering around its breakout level at last year’s highs we’re looking for any clues we can get for whether or not these new highs are here to stay.
If the new highs in global yields are holding, that would go a long way in supporting the upside resolution in the US 10-Year.
On the other hand, if we start to see more and more yields around the world fail and roll over, the US will likely follow.
Key Takeaway: Put/call ratios are high, there are more bulls than bears on both the AAII and II surveys (a rarity over the past decade) and active investment managers have slashed equity exposure. If the conditions that have been in place since the Financial Crisis lows (which occurred this week in 2009) are still in place, it is hard to argue that sentiment is not a meaningful tailwind for equities and is fuel for a rally. Two cautions: Sentiment is a condition, but rarely a catalyst. This means price action needs to improve to bring bulls back on board. But more significantly, there is still evidence that the speculative unwind that began last year is still ongoing and strategic positioning indicators show little improvement that would indicate longer-term risks are subsiding. Those get exacerbated as the Fed starts to raise interest rates and withdraw liquidity.
I'm sounding like a broken record about elevated options premiums and my desire to be a net seller of options, and for good reason: $VIX continues to hang tight in the 30's. And when volatility is this high, it tends to favor the premium sellers. Not every time, but most of the time.
So during our morning Analyst meeting, me and the team were kicking ideas around for putting an options trade on today. And while there are some tempting candidates for putting delta-neutral credit spreads on -- we all coalesced around the idea of leveraging the high prices of put options here into a long position in Nucor Corp $NUE:
