Welcome back to Under the Hood, where we'll cover all the action for the week ended November 14, 2022. This report is published bi-weekly and rotated with our 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.
The bulls are dropping the US dollar like it's hot – and risk assets worldwide love it!
Few areas are enjoying the newfound dollar weakness quite like the metals space. It’s not just precious or base metals catching higher. It’s both.
So if you shelved those shiny rocks months ago, it’s time to pull them out and take a look.
Copper futures are up first:
Dr. Copper went out with a bang last week, posting its largest single-day return since 2009. We call these types of strong directional moves momentum thrusts.
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 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.
The stocks and commodities that tend to accompany rising yields haven’t kept pace since early spring. Rates across the curve have accelerated higher, leaving these risk assets in the dust.
But the seasons have changed – and the dust has settled.
Cyclical value sectors have found their footing in recent months. Now, they’re playing catch-up.
One of the strongest market themes in recent weeks has been the reemergence of value over growth.
Check out the overlay chart of the 10-year US Treasury yield $TNX and small-cap value $IWN versus small-cap growth $IWO:
There’s a profound mental shift that happens when you flip from being in positions where bad luck could damage or ruin your trading account, to being in a position where the unexpected might actually make you a ton of money!
For options traders, an excellent example of these two positions is a short straddle vs. a long straddle.
In a short straddle, a trader is naked short an equal amount of calls and puts at the same strike and expiration. The PnL graph of a hypothetical 100-strike short straddle looks like this:
You’ll notice that as long as the underlying price (as displayed along the x-axis) stays +/- $20 from today’s price of $100, the trader will likely earn a profit as options expiration approaches.
