Non-members can get a quick recap of the call simply by reading this post each month.
By focusing on long-term, monthly charts, the idea is to take a step back and put things into the context of their structural trends.
This is easily one of our most valuable exercises as it forces us to put aside the day-to-day noise and simply examine markets from a “big-picture” point of view.
With that as our backdrop, let’s dive right in and discuss three of the most important charts and/or themes from this month’s call.
If tech stocks are signaling that a bottom is in, we're of the mind that we'll find some significant beta in a badly beaten household name: The recently renamed Meta $META (otherwise known as Facebook...).
Chatting with JC this morning, he was drawing a comparison of META to what Gold Miners $GDX did in 2016:
In the arsenal of every trader and technical analyst lies a countless number of indicators, metrics, and tools.
Everyone in the business is aware of the classic indicators: moving averages, Fibonacci extensions, momentum oscillators... the list goes on.
Perhaps one of the most valuable tools is the AVWAP. This is merely a representation of the average price by volume anchored to a specific time.
The AVWAP works because it takes advantage of human psychology. It's universally accepted within the scientific community that humans are driven by a slew of biases. Ask any trader, and they'll attest.
An incredibly common heuristic that drives much of the financial industry is the age-old anchoring bias. Many traders irrationally make decisions solely based on the price they paid for a stock.
In this sense, the market is driven by these participants responding to supply/demand dynamics within the context of their personal anchoring.
When the worst stocks on the planet can't go down any more, that's usually good information.
We saw a lot of Small-cap Growth, Arkk Funds, Biotech, Chinese Internet and many of those other "Growthy" areas bottom out this Spring, and some of the last ones in June.
At the Mega-cap level, nothing caused more shareholder wealth destruction than Facebook, down 60% from its highs less than a year ago.
With a few breadth thrusts in recent weeks, and a little preview of what a weaker dollar could do to this market, we had plenty to talk about.
This question included: New Bull or Mean Reversion in a Bear?
I think the S&P500 tells an interesting story. You've got that massive top that formed throughout the past year, completing with a break of support this Spring.
And after further selling, the bounce has brought it back all the way to the neckline. These are the "trenches":
You probably think I say the same thing every week. That’s because I do.
Of course, I throw in a well-defined trade setup here and there, but always within the context of the dollar and its impact on the major asset classes.
It’s that important.
As the US Dollar Index rally is well underway, it’s interesting some individual USD crosses are finding resistance at historical levels of interest to both the currencies involved and risk assets!
Here’s a chart of the US dollar/Swedish krona cross zoomed out to the late 1990s:
We’ve had some great trades come out of this small-cap-focused column since we launched it back in 2020 and started rotating it with our flagship bottom-up scan, Under the Hood.
For the first year or so, we focused only on Russell 2000 stocks with a market cap between $1 and $2B.
That was fun, but we wanted to branch out a bit and allow some new stocks to find their way onto our list.
We expanded our universe to include some mid-caps.
To make the cut for our Minor Leaguers list, a company must have a market cap between $1 and $4B.
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.
Financials went back and kissed the same prices they hit at their peak just before the Great Financial Crisis.
This is easily one of the most important price levels in stock market history. And I heard no one talking about it.
Meanwhile, the Home Construction Index did the exact same thing. In this case, even more special. The peak in Home Construction was when the fund launched, which is both classic and hilarious.
