Editor's Note: Before we dive into the substance of today's note, I want to be sure you're all aware that our Crypto Friday Live Strategy Session will get started tomorrow, January 28, at 3:00 p.m. ET.
We talk about it all the time -- and for good reason. If these last few years have reinforced anything, it's the power and efficacy of incorporating relative strength into our approach.
You can never outperform if you don't hold assets that are doing exactly that, outperforming.
Given that trends are more likely to continue than reverse, if a group of assets have outperformed their alternatives, it's more likely than not they'll continue to do so.
One of the primary components of our work as technical analysts here at All Star Charts is finding favorable opportunities through relative strength: stocks, commodities, sectors, and, more recently, in cryptocurrencies.
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: US stocks are on the ropes after taking a series of heavy hits in recent weeks. This comes against a backdrop of rising volatility and fear, fueling an increase in pessimism. A complete unwind from speculative extremes is underway as a market that once bent under pressure is now beginning to snap. The silver lining is that there are still pockets of strength among cyclical/value sectors, like energy. The question is whether or not this can remain the case in the face of widespread pessimism.
Sentiment Report Chart of the Week: Leadership Rotation Gets Energetic
One of the most underappreciated elements about Bitcoin is the transparency of transactions. This enables us to gain deep insights into the behavior of investors and users of the network.
The growing industry of on-chain analysis looks to address the concerns of those who wish to categorize, cluster, and ultimately analyze entity behavior to find increasingly reliable and actionable signals.
Blockchain mechanisms mean analysts and traders have access to a wide array of data that isn't possible to replicate in traditional asset classes, like stocks, commodities, and bonds.
One of the key metrics we've found to be of tremendous value is quantifying investor supply and demand through the use of supply shock.
In today's note, we'll outline how we use this data to supplement our traditional price work and technical analysis.
We're continuing the theme of monitoring relative strength in this tricky tape. The next leaders if/when a bull market resumes are revealing themselves now. Are you paying attention?
One of the names that is holding up relatively well recently, and one that also appears in our recent Follow the Flow report is Qualcomm $QCOM.
This week when the broader indexes printed their recent lows, $QCOM tested the low of a the range coming out of its breakaway gap last November and held. This is important.
To some investors, they might look at the market and say, "Hey on Monday the market was up a little, and today is was down a little. NBD".
And they won't be wrong.
In fact, Charlie Dow always preached that closing prices were the most important prices. And that was 130+ years ago.
But for those of us who understand the current circumstances. For those of us who do watch the market internals and intraday action, we wouldn't come to that sort of simple conclusion that easily.
In fact, we'd probably disagree with the, Up a little Monday and Down a little Tuesday idea.
From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
Risk assets are on the ropes after taking a series of heavy hits last week.
Equities have been a sea of red across the board as selling pressure broadens out. Growth continues to collapse, and even many of the latest leadership groups – like banks – are failing to hold their breakouts.
When we look inside the stock market, there's certainly a bear market feel to the price action in recent weeks. For example, offensive areas are being sold indiscriminately while defensive sectors make new relative highs.
But when we look outside the stock market, the story is very different. Despite the volatility, we’re still not seeing much of a bid in traditional safe-haven assets.
In today’s post, we’ll focus on the Japanese yen. But it’s the same story for gold and Treasuries.
Here is a look at all three. From top to bottom, this is the Gold ETF $GLD, the US Treasuries ETF $IEF, and the Japanese yen $JPY:
Corporate bond yield momentum a headwind for stocks
Growth and inflation leave little excess liquidity for financial markets
Fed poised to follow global central banks into tightening mode
Plenty of eyes are on the Fed this week. The decisions it makes this year with respect to tapering its asset purchases, beginning a rate hiking cycle, and the timing of its balance sheet wind down will reverberate through the financial markets. This week’s meeting is more about posture and communication than it is about action - even with that I would not be surprised by hawkish dissents from members of the committee who want to accelerate the time table for any or all of the decisions mentioned above. Before getting to possible equity market implications of interest rate hikes, we would do well to acknowledge that liquidity conditions have already begun to deteriorate.
I joined JC and Strazza today during their daily Twitter Spaces brainstorm and we got to kicking around ideas of how we want to play this market.
When prompted, I voiced my opinion that anything we do in the options space right here should involve being sellers of options. Premiums are elevated pretty much across the board. So whatever we do, let's get a tailwind to help us along. And for me right now, that tailwind is mean-reversion in options premiums.
We never know when premiums will trend back to normal, but we do know that they always eventually do. So we must position ourselves accordingly.
After kicking around a few ideas, collectively we agreed it's best to err in a household name that is unlikely to kill us if we get it wrong.
As we progress into Q4 of Fiscal Year 2021-2022, this playbook outlines our thoughts on every asset class and our plan to profit.
This playbook will cover our macro view, touching on Equities, Commodities, Currencies, and Rates, as well as outline our views on the major nifty indices and the sector/thematic indices.
We also cover individual stocks we want to be buying to take advantage of the themes discussed in the playbook.
