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.
Welcome back to our latest Under the Hood column, where we'll cover all the action for the week ended April 1, 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.
How do you get to a place where you can immerse yourself in “the Zone” to think deeply about trades, strategies, strategizing, or new ways to approach risk management?
For me, far and away the best way to enter this zone is to go for a long walk – preferably in the mountains or in a forest. Just me, maybe my dog, and the sound of the wind whispering in the trees.
On Wednesday night, I returned from four days in the Redwoods National & State Parks of Northern California. Me and a friend hiked nearly 35 miles total.
I cannot begin to describe how amazingly beautiful this corner of the world is. It was my first time there. I took some pictures and videos, but it does not do it justice. You just cannot feel it the way you do when you’re standing amongst those towering Redwood trees and the deafening silence of the endless foggy forest washes over you.
Today we sit down and chat with Professional Trader Kimmy Sokoloff.
I'm lucky to have known Kimmy for well over a decade, and we hit it off from the start.
Kimmy went through the CMT program in the 90s. And funny enough, volunteered later on with the CMT Association to grade Level 3 exams, which are mostly essays. We joke that she most likely graded mine in 2007-2008.
While I like to look out weeks and months for my timeframes, Kimmy focuses specifically on the hours and days. A 2 week trade for her is "Long-term".
We're both trained in similar ways, as CMT Charter holders. But our experiences are different.
Kimmy spent most of her career in Institutional Sales and Trading. She spent decades on the phones all day with huge funds.
So when Kimmy has something to say, we want to listen. I hope you enjoy this as much as I did.
The CRB Index is up 27.03% year to date while the S&P 500 and the 30-year Treasury bond aren’t even in the ballpark, posting lackluster performances of negative 4.95% and negative 6.25%, respectively.
Commodities are really the only game in town these days.
With that as our backdrop, we want to continue focusing on this asset class for buying opportunities.
As many of these contracts consolidate or correct following explosive upside moves, we’re paying extra attention to those that have been basing in recent months – such as natural gas.
Let’s take a look.
Here’s a zoomed-out weekly chart of natural gas futures:
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.
For this week's trade, we're putting on a $CCJ September 30/40 Bull Call Spread for an approximately $2.20 debit. This means we're long the 30 calls and short an equal amount of 40 calls for a net debit which represents the most we can lose in this trade.
Get the full details, risk management procedures and targets for this trade here:
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
It finally happened…
The yield curve inverted for a brief moment as the 2-year yield rose above the 10-year earlier this week.
But whether or not it inverted yet is beside the point. It’s been flattening for a long time, and that’s the direction we’re headed in. It's only a matter of time.
While media outlets and fearmongers will spin this development as an urgent warning of an impending bear market, here's what you need to know: Throughout history, equities have done well during and after inversions.
This commonly observed leading indicator has a tendency to precede major market tops by years, not months. In other words, there's still time. The average lead time is about 18 months after prior inversions.
More importantly, when it comes to forecasting bear markets and recessions, many experts will argue that it is actually not the 2-year we should be focused on, but the 3-month yield.
Over the last few months, I've jumped down the rabbit hole that is Crypto Twitter (better known as CT).
As someone who's snooped around Financial Twitter (or FinTwit), a community dominated by industry professionals, CMTs, and CFAs, opening the trapdoor into CT felt similar to the culture shock I would experience moving to a new country.
Anyone that's had a presence in CT knows the culture: anon (anonymous) accounts, constant meme-ing, and shit-posting from a community of outcasts and degenerates enjoying riding the volatility of a new generation of assets.
This carnage was the perfect breeding ground for the wassie...
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.
