Welcome to our latest RPP Report, where we publish return tables for various asset classes and categories, along with commentary on each.
Looking at the past helps put the future into context. In this post, we review the absolute and relative trends at play and preview some of the things we’re watching to profit in the weeks and months ahead.
We consider this our weekly state of the union address, as we break down and reiterate both our tactical and structural outlook on various asset classes and discuss the most important themes and developments currently playing out in markets all around the world.
It was the final stretch of the last sailing race of the day on Lake Michigan.
A couple of my good friends squeezed the race in just before the weather started to deteriorate. They could see clouds in the distance. The wind was picking up and gusts were intensifying.
In the boat, the cool-handed skipper was catching as much of the wind as he dared, the boat heeling sharply to one side. Those on the high side were leaning over the edge as far as they could without losing their grip. Those on the low side worked their ropes, trying to avoid getting swamped as the rail dipped below the surface of the water.
But a huge gust came up as the finish line came into sight.
It was powerful enough that those on board took a deep breath, expecting to soon find themselves tossed into the lake. If the boat was going to capsize, this would be the moment…
We live in a world where everything is connected. We have access to the globe as a whole, be that for information, goods, or services.
This is the theme we want to touch upon today. In the post-pandemic era, our definitions of normal have changed several times. Consumer patterns have changed drastically with every version of normal. So why is it that we're discussing this today?
The cost of transportation of goods has skyrocketed, thanks to a variety of reasons. A direct impact of this, of course, would be on the constituents of this unique group.
So we thought this would be a good time to analyse this space and see if there's anything worth looking into here.
At All Star Charts, we enjoy making custom indices and looking out for developing patterns in all the sectors (grouped or ungrouped). We're happy to put together a family of stocks that belong to the same category and study the impact or trend of that particular index. We're doing just that!
"We’re buying $CSCO January 70 calls for approximately 23 cents. These options are priced as a long shot and we’ll be treating it as such. I’m fully prepared to lose 100% of my capital on this trade if $CSCO doesn’t make the move we need. So I’ll be sizing my position accordingly.
But if it goes our way, we should get plenty of opportunity to take our original risk off the table along the way. My best practice is to sell half of my position when the value of the options have doubled. And I will do that in this case. Then I’ll hold the rest, looking for the big move.
If $CSCO gets to our 74 price target, those 70 strike calls will be worth at least $4.00 — probably more, depending on when that price is reached. $4.00 per contract would be 20x what we originally paid. YAHTZEE!"
As many of you know, something we’ve been working on internally is using various bottom-up tools and scans to complement our top-down approach. It's really been working for us!
One way we’re doing this is by identifying the strongest growth stocks as they climb the market-cap ladder from small- to mid- to large- and, ultimately, to mega-cap status (over $200B).
Once they graduate from small-cap to mid-cap status (over $2B), they come on our radar. Likewise, when they surpass the roughly $30B mark, they roll off our list.
But the scan doesn’t just end there. We only want to look at the strongest growth industries in the market, as that is typically where these potential 50-baggers come from.
Key Takeaway: Sentiment is teetering on the edge of a complete unwind. Six months of choppy markets has taken its toll on optimism and now pessimism is starting to move higher. This week’s II data could just be a shot across the bow in terms of a more cautious stance from investors, especially if the struggles seen beneath the surface make their way to the S&P 500 and NASDAQ Composite. Volatility has started to pick up but there is plenty of room for price weakness to prompt fear and re-positioning on the part of investors. For stocks, the weakest part of the sentiment curve is after optimism peaks and as pessimism becomes more widespread.
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 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’re not really expecting much more than tumbleweeds and a few winners here and there while Bitcoin’s stuck below the upper-end of this range near 47,500.
But if we see a breakout above that level, we’ll be deploying some more cash into new long positions.
It looks like we could be getting a resolution this morning, with Bitcoin trading back into the 47,000's.
For those with a shorter timeframe, the bias is higher above 47,500 toward the former crash highs of 53,000:
This is not something we do often -- usually because these types of opportunities don't present themselves frequently. But we've identified an under-appreciated potential for a 20x gain on our invested capital if the markets cooperate.
Its the perfect storm of a megacap stock emerging from an long base, options flow showing people are starting to position for "something" and an ASC price target that doesn't appear to be priced in by the crowd.
Of course, part of the reason for the elevated options activity is due to an "Investor Day" event happening today, but the action still has been raising some attention.
We debuted a new scan recently which goes by the name- All Star Momentum.
All Star Momentum is a brand new scan that pinpoints the very best stocks in the market. This time around, we have incorporated our stock universe of Nifty 500 as the base. Among the 500 stocks that we follow, this scan will pump out names that are most likely to generate great returns.
While we go through our lists of sectors and stocks on a weekly basis, we thought of launching a product that would highlight the names that are the strongest performers in our universe and those that are primed for an explosive move.
Just like The Outperformers scan, this is a list of stocks belonging to the sectors that display relative strength in the market at any given point in time. Since sector rotation is the lifeblood of a bull market, we will be ahead of the curve before the gears keep shifting.
From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
The US Dollar has been trapped in a sideways trading range for the trailing 12 months now. The primary trend is lower, and we continue to see near-term weakness from the DXY Index as well as most USD crosses.
Commodity-centric currencies have been some of the best performers versus the Dollar since early last year, although most of them have been correcting since Q1 or Q2, giving back a good deal of their earlier gains.
So, will we see a resurgence back to those risk-on pairs, or will they keep sliding lower against the Dollar?
Today, we’re going to focus specifically on the currencies of some of the largest oil-producing countries in the world.
This should give us information not just about currency markets, but also commodities and risk assets in general.
Let’s talk about it.
An easy way to aggregate and measure their performance as a group is by analyzing our Petrocurrency Index. It includes currencies like the Canadian Dollar $CAD, the Russian Ruble $RUB, and the Brazilian Real $BRL, among others.
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.
