From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
The rally in the US Dollar Index $DXY is stalling out.
With each passing day, dollar internals are weakening, and the prospect of a bullish resolution from the current continuation pattern in DXY is diminishing. We expect these patterns to resolve quickly. And when they don’t, that’s information.
The bottom line is evidence continues to stack against the USD.
With that as our backdrop, let’s check in on a long USD trade that was triggered in November and outline how we want to navigate the coming days and weeks.
Until now, the answer to the Growth vs Value question has depended on what type of market cap conversation you're having.
Through the end of 2021 Large-cap Growth was still a leader. It was the Small-cap Growth stocks that had been crushed most of the year, particularly when compared to the performance of Small-cap Value.
You can see the new 52-week lows in IWO / IWN coming into 2022:
We’ve already had some great trades come out of this small-cap-focused column since we launched it in 2020 and started rotating it with our flagship bottom-up scan, Under the Hood.
We recently decided to expand our universe to include some mid-caps…
For about a year now, we’ve focused only on Russell 2000 stocks with a market cap between $1 and $2B. That was fun, but it’s time we branch out a bit and allow some new stocks to find their way onto our list.
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.
And it was a good one for most risk assets. Although the majority of stocks had their struggles at some point throughout the year, sector rotation continued to drive index prices higher. And it wasn't just stocks, risk assets in general had one for the record books.
The Average stock in the S&P500 was up 27.6% in 2021.
The Median S&P500 stock returned 25.2% for the year.
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
In recent weeks, we’ve been diving into individual commodity groups to size up the structural trend and to get a better idea of where we’re likely headed in the new year.
Last week, we highlighted energy contracts and the fact that many are still grappling with overhead supply. And earlier in the month we covered the worst-performing area of the commodity markets - precious metals.
Today, we’re going to turn our attention back to metals and review the base metals group.
Even with the S&P 500 printing record highs, trading ranges and overhead supply stole the show in 2021 and those dominant themes are evident when we look at base metals.
Notice the strong relationship between our equal-weight base metals index and blue-chip international equities in the Global Dow Index $DGT.
Yesterday, we wrote a post about scanning for new lows, putting our own spin on a strategy called "Wall Street's only free lunch."
I was joking with JC that it felt a bit uncomfortable to search through such a weak list of stocks. After all, we’re used to scanning for strength.
But the scan was a fun exercise, and we found some weakness we want to be buying in secular leaders.
The universe wasn’t exactly full of strong stocks, as we were scanning for new 52-week lows. But that’s OK; we have plenty others for that.
In this post, we’re going to walk through another scan we did internally this week. Unlike the "free lunch," this one is more in line with our top-down approach of finding the strongest stocks in the strongest groups.
While we're still scanning for new lows, we’re doing so on a much shorter time frame, and we're adding additional filters to ensure all the stocks on our list are leaders.
