When investing in the stock market, we always want to approach it as a market of stocks.
Regardless of the environment, there are always stocks showing leadership and trending higher.
We may have to look harder to identify them depending on current market conditions… but there are always stocks that are going up.
The same can be said for weak stocks. Regardless of the environment, there are always stocks that are going down, too.
We already have multiple scans focusing on stocks making all-time highs, such as Hall of Famers, Minor Leaguers, and the 2 to 100 Club. We filter these universes for stocks that are exhibiting the best momentum and relative strength characteristics.
Clearly, we spend a lot of time identifying and writing about leading stocks every week, via multiple reports. Now, we're also highlighting lagging stocks on a recurring basis.
We play with the cards we are dealt. There is nothing else we can do. We cannot employ willpower to create market conditions into being the way we'd prefer them to be. They are what they are, it is what it is. So we work with what we've got.
And what we've got right now are a bunch of badly beaten up stocks. Many still off 60%+ from their recent highs.
Dumpster diving isn't my favorite way to find new ideas to trade. But my man Strazza enjoys the exercise from time to time and recently, he's uncovered some notable insider buying and unusual options activity in some former highflyers, most notably Zoom $ZM.
But first, let's survey the damage. This probably isn't new to many of you, but look how far ZM has fallen from its recent perch atop Momentum Mountain:
From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
The US dollar is on the ropes as global currencies bounce back.
After failing to hold its breakout earlier in the month, the USD looks vulnerable against a growing number of currencies.
The pound and euro are catching higher. The Swiss franc is rebounding off its recent lows. And the commodity-centric Australian and Canadian dollars remain resilient.
We can add the Mexican peso to this list, as the USD/MXN cross broke down to fresh 52-week lows yesterday. This breakdown supports the near-term bearish argument for the dollar.
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This month’s Video Conference Call will be held on Thursday June 2nd @ 6PM ET. As always, if you cannot make the call live, the video and slides will be archived and published here along with every other live call since 2015.
The magazine cover on the left, describing how Bitcoin was "Storming Wall Street" came just a few weeks before Bitcoin put in a historic top in late 2017. Immediately after this cover story, Bitcoin went on to have one of the most epic crashes of all time.
Investors got wiped out right after the one on the left.
And now here we are after Bitcoin got cut in half, and many of the altcoins are down 70-80% if not more.
Welcome back to our latest Under the Hood column, where we'll cover all the action for the week ended May 27, 2022. This report is published bi-weekly and rotated with our Minor Leaguers column.
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.
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.
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Not all indexes are created equal… But, some are equal-weighted.
We like to use the equal-weight versions as they level the playing field among components and give us a more accurate view of the participation within a given universe.
This balanced approach adds a crucial layer to our analysis.
Friday, we highlighted our custom commodity index which assigns the same weighting to thirty-three individual contracts. As we would expect, it’s moving in lockstep with the 10-yr breakeven inflation rate. Both are rolling over in the near term.
Interestingly, the energy-heavy CRB index is not following the same path. It's trading at new highs.
It was comparing the current circumstances to what happened in 2010.
If you recall, the stock market ripped off those March 2009 lows, then in 2010 looked like it was completing a major top, but didn't, and then prices exploded higher instead:
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Nobody likes inflation.
The costs of day-to-day necessities rise. Long-forgotten and disliked sectors of the market start to outperform. And many of the cool tech names that were a must-own for every portfolio turn into a pile of hot garbage.
Now that everyone – even the Fed – agrees the current inflationary environment isn’t transitory, cries of a near-term top in inflation have emerged.
Yes, breakevens and inflation expectations have peaked and are beginning to roll over. Whether this will turn into a substantial downturn in the coming weeks and months is anyone’s guess.
Instead of playing the guessing game, we’re focused on commodities – the assets that benefit most from inflationary pressures.
Here’s what we’re seeing.
This is a chart of our equal weight commodity index overlaid with the 10-year breakeven inflation rate:
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.
