Over the last few weeks, we've been pointing to the growing leverage in the derivative markets exacerbating volatility.
In our last report, we also outlined how we're anticipating this to unwind in the coming weeks. This continues to be the key theme for the first quarter.
Additionally, a variety of metrics suggest the market is strongly in oversold conditions, offering a favorable level for long-term investors to add to spot positions.
Meanwhile, derivatives and macro conditions present a headwind for speculative dip-buyers.
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.
Our International Hall of Famers list is composed of the 100 largest US-listed international stocks, or ADRs. We’ve also sprinkled in some of the largest ADRs that did not make the market-cap cut.
These stocks range from some well-known mega-cap multinationals such as Toyota Motor and Royal Dutch Shell to some large-cap global disruptors such as Sea Ltd and Shopify.
It’s got all the big names and more -- but only those that are based outside the US. You can find all the largest US stocks on our original Hall of Famers list.
The beauty of these scans is really in their simplicity.
We take the largest names each week and then apply technical filters in a way that the strongest stocks with the most momentum rise to the top.
Based on the market environment, we can also flip the scan on its head and filter for weakness.
Let’s dive in and take a look at some of the most important stocks from around the world.
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Crude oil bulls are back in town!
They kicked the year off by pushing price back above 76 and reclaiming the upper bounds of a multi-year base. Oil is the most important commodity in the world, so it’s hard to overstate just how bullish fresh seven-year highs would be.
But we’re not quite there yet. We still need to take out the fall highs.
The 76 level marks the former 2018 highs and the breakout from a massive reversal pattern. Buyers ran into an overwhelming amount of supply here during the back half of 2021. When they did manage to reclaim those former highs, it was short-lived, and the move quickly failed.
The most speculative areas of the market peaked in Q1 of 2021 and have been under pressure ever since. It’s not just IPOs and SPACs. Areas like biotech, social media, and online retail have completely fallen out of favor too.
Many of the stocks that have been selling off were among the top performers off the COVID lows in 2020. Some of these former leaders are in 60% to 70% drawdowns today.
What a difference a year can make!
Now that we’re getting closer and closer to the first rate hike, the prevailing opinion seems to be that these stocks will remain under pressure. As things currently stand, there's not much on the charts to suggest they're ready to turn things around.
On the other hand, some of these industry groups are already more than 30% off of their highs -- and that’s at the index level. Eventually, further downside would be inconsistent with the idea that stocks are in a bull market.
For the health of the overall market, we want to see these stocks stop selling off so aggressively. Despite the volatility this week, there are some signs that this is happening.
The first two days of this week completed a nearly text book Santa Claus rally. Then on Wednesday, it appears the Fed may have stolen his Sleigh and now his reindeer have no idea which way to steer!
This indecision has played out in the options market by raising the risk premiums being asked across a wide sector of index ETFs.
At times like this, I like to go hunting for premium-selling opportunities. And I've got one teed up so lets get to it!
