But one way it's recently caught our attention is that we can see flows of capital BEFORE they show up in price. These are called on-chain metrics.
The blockchain is a public ledger.
We can see how many users are transacting on the network, how old these addresses are, how many coins they have, the profit and losses of these transactions, and the flows into exchanges before they hit the market.
If you're not incorporating these metrics into your analysis, we think you're missing out.
Markets operate under the constant influence of greed and pessimism. This is especially true in Crypto where we don't have CEO's, earnings, or arbitrary discounted cash flow models.
It's pure supply, demand, and human emotion at work.
We can apply our technical tools to these markets because that same human element often has a funny way of repeating.
These last few months are just a testament to this entire school of thought...
One of the processes we absolutely love to follow is the Top/Down Analysis approach. In this process, we identify the larger trend and then zoom in and analyse the characteristics that stand out. We look at the asset classes, identify the strongest one, and then deep dive. Next, we look at sectors and identify the pockets of outperformance. Finally, we take a look at an actionable trade that suits our risk and reward parameters.
This is one of our favorite bottoms-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.
What we do here is analyze the most popular stocks during the week and find opportunities to either join in and ride these momentum names higher, or fade the crowd and bet against them.
We use a variety of sources to generate the list of most popular names. There are so many new data sources available that all we need to do is organize and curate them in a way that shows us exactly what we want: A list of stocks that are seeing an unusual increase in investor interest.
Key Takeaway: Index-level strength lacks support beneath the surface. Economic surprise index dips below zero. The earnings revision trend is higher though the pace of ascent is slowing.
Real Estate moved into the top spot in our rankings. It was one of four large-cap sectors to make new 52-week highs last week (the others were Consumer Discretionary, Health Care & Technology). No small-cap or mid-cap sectors made even 13-week highs.
Financials have been short-term & mid-term laggards, with deteriorating conditions in Banks across market cap levels weighing on the sector.
JC put a post up today taking a look at the Semiconductor sector. As a group, the sector is looking poised for a breakout and he goes into some of the even better looking charts for individual names that make up the sector index. Give it a read.
His favorite idea from the group is one that I can get behind, especially in light of the price action over the past two days. It feels like now is the time to get involved.
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 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.
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.
Global Yields Threaten European Equities
Last week we discussed the underperformance of European banks and the potential implications in the near term for risk-taking behavior.
This week, these suspicions were confirmed when price fell back below a key level, confirming a failed breakout. Similarly, the MSCI United Kingdom ETF, one of the most important economies within Europe, was unable to break above a significant resistance level around 34. Now, both are trapped below overhead supply.
If European financials and UK stocks are trapped below their pre-covid highs, it’s consistent with an environment where markets remain messier for longer and risk assets are vulnerable.
Technical analysts often say, "From compression comes expansion."
In other words, 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.
Just take a look at how tight the Bollinger Bands have become in Bitcoin:
Through this measure, volatility is at its lowest point since October last year...
The number one question I have gotten from financial advisors over the course of two-plus decades in this business is “What should I do now?” The answer can sometimes be “nothing”, but it cannot always be “nothing”. Dynamic portfolio management is about finding the right balance between following existing trends and adjusting as necessary to new information. To do this we need to have a good grasp of time frames. Every investor has a timeframe. Every system has a timeframe. Finding harmony between the two helps provide the appropriate balance between action and inaction.
Technical Analysis is an art. It's not an exact science.
Sure, we use a lot of computers and math as inputs to help piece together the overall puzzle. But it's the interpretation of all that data that represents the art form.
That's how I see it anyway.
And so we always like argue both sides and see which one has the highest probability of occurring.
This week we're looking for a long setup in the Industrial Manufacturing sector. We shared a few ideas in our recently concluded Monthly strategy call as well. But here's another name that's looking good!
