The Outperformers is our newest scan that pinpoints the very best stocks in the market. It’s the fastest, easiest way to find quality names that are primed for major moves.
The goal is that as the market rally progresses, the sector rotation within the market will reflect in this scan. So while our Top/Down Analysis helps us with the broader view of the market, this Bottom/Up scan makes sure that we catch the slightest change in sentiment.
Key takeaway: Last week’s volatility unwound some near-term complacency, but there is still plenty of evidence of optimism in the system. Active managers increased their equity exposure and equity ETFs continue to attract inflows at a staggering pace (though certain sectors are starting to see outflows). A more challenging breadth backdrop poses a challenge, but with economic data continuing to surprise to the upside and earnings expectations being revised higher, excessive optimism may be slow to unwind. While risks are elevated from a sentiment perspective, they are not yet being manifested in terms of price.
Sentiment Report Chart of the Week: Large Tech Outflows
From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge.
Check out our latest Mystery Chart!
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 of 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?
There is a special purity in the crypto markets that is absolutely fascinating to technicians like us.
It's a supply and demand game to the ultimate extreme. There are no fundamentals. There are no earnings. It's just fear and greed, no government intervention, just humans being humans.
It's pretty awesome.
I've noticed sentiment is getting pretty extreme down here and the risk vs reward opportunity here is to the upside.
30,000 has been an important level in Bitcoin going back to the prior up cycle. This was our first target after completing that multi-year base:
And the market quickly answered with a resounding, YES!
We’ve highlighted several currency pairs challenging crucial levels of support and resistance. Last week, we saw the USD take control at those key levels.
Both the EUR/USD and GBP/USD turned away from critical areas of former support turned resistance. The USD/CAD moved sharply higher from a major area of support. The AUD/USD broke back below a key retracement level after consolidating for the first half of the year. And the NZD/USD retreated from an area of overwhelming overhead supply.
Responses were mixed but skewed in the bearish direction.
The point of our exercise was to question whether buyers would have the power to push prices back above our risk level… or if sellers would follow-through and validate the pattern breakdown.
If the former was to be true, we’d have a “bull-hook” formation on our hands. Some might call it a “bear-trap”. Either way, it’s bullish.
But that’s not what has happened at all. Since our mystery post, sellers have taken control as prices continued to collapse lower.
We’re now looking at a decisive violation of our risk level. Let’s dive in to see what’s really going on and discuss why this chart is so important!
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.
We've already had some great trades come out of this Smallcap-focused column since we launched it late last year and began 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. After applying price and liquidity filters, we simply sort by proximity to new highs in order to focus on the best players.
Key Takeaway: Fed-fueled volatility exposes weakness beneath the surface. Breadth trends at odds with index-level resiliency. Drop-in yields and defensive sector leadership consistent with elevated risk environments.
Last week’s volatility produced a shake-up in our relative strength rankings. Materials and Financials both saw big drops, while Technology and Communication Services surged into the lead.
Looking beyond the cap-weighted S&P 500 sectors shows a less decisive shift in leadership - Energy & Real Estate remain strong, both at the sector level and in terms of the industry group heat map.
The process of analysis is such that there are times when trends emerge and times when things are simply messy. Over the past week, with the halt in the trend of the major indices, something emerged on the charts. This something demanded attention.
Negative divergences appear when momentum does not follow the price movement. When there is a disparity between the price move and the indicator, it is a sign of caution. Not to say that a contrary position can be assumed immediately, but the sentiment certainly turns cautious!
So what is it that's hinting at being cautious in this market?
Let's take a look!
The market indices together are saying that the current trend isn't as strong as it seems. Why do we say so?
Here we have our stock universe Nifty 500. This past week's close brought along with it a negative divergence on the chart. As can be seen below, despite the price making a higher high, the indicator went on to mark a lower high. When this happens, we get an insight into the inherent strength of the market. Or in this case, weakness.
