The infamous Santa Claus rally is just around the corner.
And contrary to popular belief, it doesn't start until the end of next week.
The official period for the Santa Claus rally includes the last 5 trading days of the year and the first two of the following year.
Based on the 2022/2023 holiday schedule, that means this year's Santa Claus Rally begins on Friday December 23th and goes through Wednesday January 4th.
These 7 days have historically had a ridiculous track record, averaging over a 1.3% return for the S&P500 and coming in positive almost 80% of the time.
Since 1950, all other 7-day periods throughout the year only average 0.24% returns and were positive less than 60% of the time.
Welcome back to Under the Hood, where we'll cover all the action for the week ended December 9, 2022. This report is published bi-weekly and rotated with The Minor Leaguers.
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.
From the Desk of Steve Strazza @sstrazza and Alfonso Depablos @Alfcharts
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.
Remember when they told you Gold was a hedge against inflation?
It wasn't.
Remember when they told you Gold was a safe haven asset?
It wasn't.
Remember all those times the Gold bugs made up fairy tales about future price appreciation for their rocks?
It never happened.
And so here we are. Well over a decade later, Gold prices are actually still down 6% from their 2011 highs. Silver is somehow still down over 50% from those highs.
Think about the opportunity cost of owning precious metals instead of pretty much anything else.
It's the weekly commodity edition of What the FICC?
Not only are commodities losing their leaders, but the leaders are losing their former 2018 highs. As bearish as this sounds, commodities still deserve the benefit of the doubt.
Heating oil futures just posted their lowest level since February. Meanwhile, gasoline and crude have printed fresh year-to-date lows, taking out their prior cycle highs.
Now what?
Should we expect broad selling pressure to hit the commodity space?
Not so fast…
If you believe impending weakness awaits commodities in the coming weeks and months, this chart is for you: our energy index overlaid with our broad commodity index (both equal-weight):
From the desk of Steve Strazza @Sstrazza and Alfonso Depablos @AlfCharts
Our International Hall of Famers list is composed of the 100 largest US-listed international stocks, or ADRs.
We’ve also sprinkled in some of the largest ADRs from countries that did not make the market cap cut.
These stocks range from some well-known mega-cap multinationals such as Toyota Motor and Royal Dutch Shell to some large-cap global disruptors such as Sea Ltd and Shopify.
It’s got all the big names and more--but only those that are based outside the US. You can find all the largest US stocks on our original Hall of Famers list.
The beauty of these scans is really in their simplicity.
We take the largest names each week and then apply technical filters in a way that the strongest stocks with the most momentum rise to the top.
Based on the market environment, we can also flip the scan on its head and filter for weakness.
Let’s dive in and take a look at some of the most important stocks from around the world.
While everyone focuses on the S&P 500 finding resistance at its 200-day moving average, bonds are posting their most substantial rally since the early 2020 peak.
Treasuries have represented downside risk for almost two years. We get it. Nobody's wanted bonds!
The long-term Treasury bond ETF $TLT has gained almost 20% since late October. In the process, it registered its largest four-week rate of change in a decade (aside from the covid related volatility).
This is what a momentum thrust looks like:
Notice the previous rallies in mid-2021 and earlier this summer (highlighted in yellow).
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.
