We get to see monthly candlesticks and refocus on the broader trend. We've said time and again how messy the current market is. When we look at the daily chart, we see a mess. When we look at a weekly chart, we see a mess. But when we look at monthly charts, a lot of things become clear.
It's almost as if you're trying to take a picture but the lens is unable to focus on the object. Monthly candlesticks correct just that. They help us focus on the object and present a clear picture of the trend.
We took a peek at some of the charts, and at a broader level, we thought these help understand some trends clearly.
As discussed in yesterday’s Market Notes, last week’s rally has us questioning whether we remain in the choppy market that has been experienced on many levels for the past few months or if we are poised for some degree of resolution to the upside. Today, we’ll take a closer look at what that could mean across stocks, bonds and commodities. As market depth evaporates ahead of the Labor Day weekend, there is no reason to believe that what we talk about has to happen this week.
Of the four trade setups we identified--EUR/USD, GBP/USD, AUD/USD, and NZD/USD--the Aussie was the only one that worked.
The fact that many of those trades failed or, more specifically, were never even triggered at all, is information!
Fast forward to today and we're looking at a failed breakout in the US Dollar Index that's been confirmed by strong downside follow-through since last week. Now, it’s time to flip the book long on some of these trades to express our thesis of further USD weakness, at least over the near term.
One trade setup that stands out due to its asymmetric risk-reward profile at current levels is the NZD/USD.
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.
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 bottoms-up scan, "Under The Hood."
To make the cut for our Minor Leagues list, a company must have a market cap between $1 and $2B. There are also price and liquidity filters. Then, we simply sort by proximity to new highs in order to focus on the best players.
The goal is to catch the strongest names while they're small and still have serious upside potential. If any of these stocks ever climbs the ranks to the big leagues, the returns could be huge. We're looking at 5-10x moves just to break into large-cap land!
Let's dive into this week's report and see what's happening in some of the hottest stocks in the Minor Leagues.
Key Takeaway: Recent laggards bounce into lead. Economic reports add noise to an otherwise quiet week. New highs for Value Line Geometric Index and Commodities would help confirm cyclical strength.
The Financials sector bounced back in the rankings last week, climbing three spots and moving into the second spot overall. Strength within the sector is broadly based as it is at the top of the rankings from an equal-weight perspective.
Thanks to FB and GOOGL, the Communication Services sector is in the top spot on a cap-weight basis. On an equal-weight basis it ranks below everything except Consumer Staples.
At the large-cap level, Transports are near the bottom of our industry group rankings. Mid-caps however, are showing strength and small-caps are improving.
Steve Strazza and I were chatting this morning shortly after the market opened, looking for trading opportunities.
We were scanning the list of stocks we've been watching and one thing that is plain to see is the stocks that are working are really working. And if we're not in them already, there's no real sense in chasing them here.
My line to him was: "It's August 30th. S&P 500 is all-time highs. You're either already long or you're in cash. There's nothing else to do here but take a walk." He agreed.
So with this in mind, I don't have a new trade idea for us today. But I'll leave you with this...
Here's why this "compression" is important to pay attention to:
As markets become more coiled, buyers or sellers are ultimately forced to front up. This period of shrinking volatility is often met with violent unwinds – in either direction.
So when we see these periods of notable reductions in volatility, pay attention because the resolution often sets the tone for weeks and months to come.
Fast forward to today, we're seeing the same setup take place.
Our Top 10 report was just published. In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Whipsaws Around The World
One of the most common characteristics of choppy markets are whipsaws. The chart below is a great example of this kind of price action, and we’re seeing it all over the place of late. Many risk assets recently violated key levels of support, but ultimately repaired the damage and reclaimed them. This type of action continues to reiterate that while the market is bending, it’s not breaking. The list of new lows in our internal breadth metrics remains muted, and critical indices and commodities, such as Energy, continue to hold their heads above important levels.
There’s an old adage that “from failed moves come fast moves in the opposite direction." Is this what could spark the next leg higher for the market? Time will certainly tell, but it’s leaning in that direction, at least in the near term.
Check out this week's Momentum Report, our weekly summation of all the action from 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 context of the big picture 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.
