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.
We’ve already had some great trades come out of this small-cap-focused column since we launched it late last year 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.
Two weeks ago, we detailed why we're sitting on the sidelines with an expectation of sideways price action to close the year.
Fast-forward to today, and the same diagnosis applies for Bitcoin and the broader crypto asset class. The macro risk environment is beginning to favor the bear camp, and it's certainly not a time to be aggressively pushing longs.
Meanwhile, the spot flows seen on-chain continue to diverge from price action, suggesting that once this consolidation phase is complete, an upward break appears to be the higher likelihood scenario.
We're watching for Bitcoin to reclaim 53,000 before we put our elevated cash back to work in positions.
Until then, we're avoiding a good majority of trading action in this low-conviction tape where whipsaws have become commonplace.
One nice thing about recent stock market volatility is that there are some bullish setups we can take advantage of with some clearly defined nearby risk levels, which give us entries with solid reward-to-risk scenarios.
And of course, in a theme we've been repeating over the past week, this volatility is also helping us more easily find where the hidden relative strength is.
So let's dive right into an idea that was surfaced in the recent Hall of Famers report.
Key Takeaway: Falling bond yields do not inspire confidence. Industry group trends faltering as breadth weakens. Holiday cheer has already turned sour.
After last week’s big jump from Consumer Staples (which held in at #4 this week), it was Utilities making a big move (from #9 to #6) in the rankings. Defensive groups are seeing strength on an absolute basis (more on that in a moment) and that is translating into higher sector rankings and improving conditions at the industry group level.
Real Estate has taken over the top spot in the rankings while cyclical sectors seem to be in a race to the bottom.
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.
This week we’re looking at a short setup in the Oil and Gas space. We've seen growing weakness in the stocks of this sector and are looking at the setups here.
We retired our "Five Bull Market Barometers" in mid-July last year 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.
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
We study a wide variety of sentiment data as we incorporate many different indicators into our day-to-day analysis.
In its simplest form, sentiment tells us how certain market participants or investors feel about the market.
Are investors feeling bullish and increasing their exposure to risk?
Or, are investors feeling fearful and positioning defensively?
More often than not, these are contrarian indicators that work best when at extremes.
One of our favorite sets of sentiment data comes from a weekly report published by the Commodity Futures Trading Commission. It is called the Commitment Of Traders, or COT report, and it simply outlines how various participants are positioned in futures markets.
We get lots of questions regarding how we analyze the COT report, so let’s talk about two of the main ways we find value in this information.
From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge
Outside of the large-cap averages in the US, most stocks have been stuck in sideways trends for much of 2021. We’ve seen breakouts fail in both directions over the past two months, as sloppy price action continues to govern the broader market.
As we discussed in our last intermarket post, this range-bound action has not just been the case for stocks on an absolute basis. We’re seeing the same thing from commodities, cryptocurrencies, and even our risk-appetite ratios. Risk assets have simply been a mess.
Let's take a look at one of our favorite risk-appetite ratios, as there's been an important development in the discretionary versus staples relationship.
Here is large-cap consumer discretionary $XLY versus consumer staples $XLP:
