From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
There's been a subtle risk-on tone in recent weeks. With each passing day, it's been spreading to more and more markets and charts.
Rates are rising around the globe. The underlying uptrend in commodities is intact and looks ready for another up leg. Our equal-weight commodity index is resolving higher from its current range. And cyclical stocks such as energy and financials are breaking out to new highs.
All of these events speak to a growing risk appetite and support higher prices for risk assets.
Although, two areas where we aren't seeing such clear evidence that risk-seeking behavior is re-entering the market would be currencies and our intermarket ratios.
The AUD/JPY cross is still stuck within a range. High-yield bonds $HYG relative to their safer alternatives -- US Treasuries $IEI -- failed to hold their recent highs. And the copper/gold ratio is a hot mess.
We would expect to see decisive upside resolutions from these charts if investors are positioning for another leg higher.
Dividend Aristocrats are easily some of the most desirable investments on Wall Street. These are the names that have increased dividends for at least 25 years, providing steadily increasing income to long-term-minded shareholders.
As you can imagine, the companies making up this prestigious list are some of the most recognizable brands in the world. Coca-Cola, Walmart, and Johnson & Johnson are just a few of the household names making the cut.
Here at All Star Charts, we like to stay ahead of the curve. That’s why we’re turning our attention to the future aristocrats. In an effort to seek out the next generation of the cream-of-the-crop dividend plays, we’re curating a list of stocks that have raised their payouts every year for five to nine years.
We call them the Young Aristocrats, and the idea is that these are “stocks that pay you to make money.” Imagine if years of consistent dividend growth and high momentum and relative strength had a baby, leaving you with the best of the emerging dividend giants that are outperforming the averages.
The cyclical weight of the evidence tilts toward opportunity.
Our tactical risk management model remains constructive even in the absence of a breadth thrust (though such an event would certainly help the bullish case).
While not doing much from an asset class perspective, we have made some changes in our dynamic portfolios. Highlights include:
Getting more constructive on Europe and the new highs coming from the UK.
Shortening the duration of our fixed income holdings as we start to upward pressure on interest rates..
Making a clean (Technology-related) to dirty (Materials-related) rotation in our Tactical Opportunity portfolio.
Overall we continue to position these portfolios not for what could or should happen but consistent with the message of the market and an eye on what is happening.
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 to our latest Under the Hood column, where we'll cover all the action for the week ended January 7, 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.
Key Takeaway: Bonds make good on their resolution to take rate hikes more seriously. Breadth thrust prospects are fading but global resiliency is encouraging. Fed will be late to the rate hiking party and so recent tightening cycles may not be as relevant.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Commodities Keep Cruising
Despite copper remaining range-bound and the CRB index stuck below its October highs from last year, our equal-weight commodity index hit fresh 8-year highs last week. This speaks to broad participation and strength among commodities, and is supportive of our view that a new commodity supercycle is upon us. This index making new highs is also excellent confirmation of the breakouts in the US 10-year yield, and energy and financial stocks. We think these areas of the market will continue to do well. Though we’re definitely not out of the woods, we are beginning to see signs that the market is finding its way. Our equal-weight commodity index at its highest level in eight years is definitely one for the bulls. After a prolonged period of consolidation in 2021, we think commodities are ready to make a fresh leg higher.
On days and weeks like this, I love to look for opportunities to sell premium into the elevated implied volatilities we're seeing rising across the board. With $VIX back up above 20, you'd think there's been plenty to pick from.
Problem is, I haven't found any delta-neutral setups that look good today. Too many busted charts on the most liquid ETFs makes finding support levels that both make sense and offer enough premium to make it worthwhile from a safety standpoint hard to find.
So, as always, I reached out to my team from some other ideas.
We've been asking the question: "how bad can things be if we're seeing this kind of relative and absolute strength in the banking and financial sectors?"
Steve Strazza served up an interesting bullish play that is either a gift of a pullback, or we're buying the top. If you're market the bullish, then you gotta believe this idea has merit.
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.
