This All Star Charts +Plus Monthly Playbook breaks down the investment universe into a series of largely binary decisions and tactical calls. Paired with our Weight of the Evidence Dashboard, this piece is designed to help active asset allocators follow trends, pursue opportunities, and manage risk.
In yesterday's note, we outlined our neutral approach, pointing out that sideways, messy action looks to be the most likely scenario for Bitcoin.
We're currently in elevated cash positions, sitting on the sidelines waiting for a higher-conviction entry before moving back into aggressive long positions. It appears as if these next few weeks could involve a high concentration of whipsaws in the context of choppy price behavior.
But today is when we publish our full crypto chartbook, so we thought we'd share how we're approaching new longs, despite the evidence pointing to this being a messy market for Bitcoin.
There's really a common pattern appearing in the alts right now.
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. What remains is a list of stocks that large financial institutions are putting big money behind… and they’re doing so for one reason only: because they think the stock is about to move in their direction and make them a pretty penny.
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.
Key Takeaway: Indexes stumble as generals see their armies fleeing the field. Bond yields drop below important thresholds. Rising volatility brings focus back to managing risk.
Energy slipped three spots (from 4th to 7th) in the large-cap rankings last week, and the sector appears even weaker beneath the surface. It's in the ninth spot on an equal-weight basis, and conditions are deteriorating within the mid-cap and small-cap energy space.
Technology remains atop the overall rankings, but relative strength on a short-term basis is from coming from Utilities, Real Estate and Consumer Staples.
Options premiums still remain elevated across the board and therefore I continue looking for delta-neutral premium-selling strategies to implement.
We have to take whatever the market is offering. The recent downward price action has created a bunch of resistance levels to lean against on the upside. So I want instruments that also have clearly defined support levels and high premiums for us to sell.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Stocks Test September Highs
The Dow Jones Industrial Average and the Dow Jones Transportation Average are both struggling at key Fibonacci extension levels from their 2018 drawdowns. Mid-caps and bank stocks are trapped back beneath key levels of overhead supply at their first-half highs. And the small-cap Russell 2000 is trading back toward the lower bounds of its year-to-date range. The majority of stocks are simply consolidating in holding patterns right now.
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 a note published on Saturday, we briefly outlined what took place over the weekend, a $700B total market-cap decline that saw most crypto assets fall over 25% on an intraday basis.
As we'll cover in this week's report, we're on the sidelines with elevated cash positions. Risks still linger for long positions right now--we're waiting for a higher-conviction entry.
Here's a quick summary of what took place over the weekend:
