After weeks of failing to hold breakouts on an individual currency basis, the tight coil in the DXY finally resolved lower.
The brief reprieve in USD strength was immediately felt across markets last week, with cyclical/value stocks and procyclical commodities catching an aggressive bid.
Now that the headwinds associated with dollar strength appear to be easing, will risk assets enjoy a tailwind in the form of sustained USD weakness?
Or was this just the latest fake-out from the DXY?
Let’s take a look at a couple of charts and highlight the levels we're watching in the coming weeks and months.
Key Takeaway: New highs being seen in areas where most investors have little exposure. Liquidity pressures build as corporate bond yields rise. Indexes consolidating after recent highs lacked broad support.
Energy remains at the top of the relative strength rankings, followed now by Financials. Materials continued to climb, rising to the number four spot this week.
Defensive sectors saw their recent relative strength moderate last week. Consumer Staples dropped one spot, Utilities were down two spots and Real Estate fell by three.
Our industry group heat-map shows this is a sector/group-sensitive rather than size-sensitive market right now. Growth sectors are being dragged down regardless of size.
In yesterday's note, we outlined our patient approach in the face of this messy tape.
For the most part, we're sitting on the sidelines waiting for an uptick in investor demand to drag the market out of this correction.
Current price action is being heavily driven by the futures market, which will only serve to increase the probabilities of whipsaws and fake-outs that can wear on traders' emotional as well as their financial capital.
Additionally, when evaluating the altcoins, there isn't any edge in being positioned aggressively long.
As we'll explore in today's post, many names look vulnerable for further near-term downside, and even most of the leading alts have lost much of their bullish momentum over the last few days.
On this episode of Pardon The Price Action, we're talking about the implications of rising interest rates. This is no longer an environment where Growth stocks outperform. It's actually the exact opposite.
We're also seeing these signs from other countries around the world with much more exposure to the Value sectors like Energy, Materials, Industrials and Financials.
US Investors have a lot more exposure to Technology and Growth than almost every other country in the world.
I think Latin America is worth watching, China and many other emerging markets.
Over the last quarter, we saw the market really struggle to pick a direction and get going. There were a lot of sideways moves and a lot of failed breakdowns. Currently, we've seen a resumption in the positive trend in most sectors, supported by market breadth.
Today we're taking a look at stocks from the Industrial Manufacturing sector. A handful of stocks are signifying what could be a good bullish going forward.
What if the outperformance we've seen from the United States stock market for so long is behind us?
Is your portfolio prepared for an environment where US stocks underperform the rest of the world?
What about your peers?
Do you think Financial Advisors across the country have positioned their clients to take advantage of outsized returns outside the United States?
I talk to a lot of people.
And my answer is no. A big fat obnoxious NO.
I don't think they're ready at all. And the pain could last a while.
By the time your average financial advisor gets off the golf course and notices how poorly positioned their clients are, it's usually much later in the cycle.
What we do here is take a chart that’s captured our attention, and remove the x and y axes as well as any other labels that could help identify it.
This chart can be of any security, in any asset class, on any timeframe. Sometimes it’s an absolute price chart, other times it’s on a relative basis.
It might be a ratio, a custom index, or maybe the price is inverted. It could be all three!
The point is, when we aren’t able to recognize what’s in front of us, we put aside any biases we may have and scrutinize the price behavior objectively.
While you can try to guess the chart, the point is to make a decision…
So, let us know what it is… Buy, Sell, or Do Nothing?
We’ve already had some great trades come out of this small-cap-focused column since we launched it in 2020 and started rotating it with our flagship bottom-up scan, Under the Hood.
We recently decided to expand our universe to include some mid-caps…
For about a year now, we’ve focused only on Russell 2000 stocks with a market cap between $1 and $2B. That was fun, but it’s time we branch out a bit and allow some new stocks to find their way onto our list.
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 last week's report, we outlined how we're viewing this recent dip as yet another low-conviction dip-buy, and why we anticipate messy and whipsaw-prone price action before a tradable bottom is found.
There's little to update on since that report.
Spot flows have been neither bullish nor bearish, but neutral. We need to see demand come in from investors to form a tradable bottom. The market appears to be in oversold conditions, making this a logical place for this to happen.
Elevated leverage in the derivative markets has made futures the dominant force on price action. There are early signs of a short squeeze developing, but we need to see investor demand support it.
Apart from a few exceptions, we're sitting out most of the action in the alts for now.
