From the desk of Steve Strazza @Sstrazza

Our Hall of Famers list is composed of the 100 largest US-based stocks.

These stocks range from the mega-cap growth behemoths like Apple and Microsoft – with market caps in excess of $2T – to some of the new-age large-cap disruptors such as Moderna, Square, and Snap.

It has all the big names and more.

It doesn’t include ADRs or any stock not domiciled in the US. But don’t worry; we developed a separate universe for that which you can check out here.

The Hall of Famers is simple.

We take our list of 100 names and then apply our technical filters so the strongest stocks with the most momentum rise to the top.

Let’s dive right in and check out what these big boys are up to.

Here’s this week’s list:

And here’s how we arrived at it:

Our friends over at Stockcharts.com asked me to put together a short video on the most important theme of 2021.

For me, it's hard to ignore how breadth deterioration throughout the most the year impacted sentiment. This summer, the extreme levels of bullishness among individual investors and financial advisors became a headwind for stocks.

After the prices of those stocks deteriorated further into the Fall, that sentiment flipped to the opposite extreme. We came into December 2021 with the most bears in over a year and fewest bulls since April 2020.

As we enter 2022, sentiment is very different than how things looked entering 2020 and 2021.

By my work, this time is different. Very different.

From the desk of Steve Strazza @Sstrazza

"There's no such thing as a free lunch."

Many of you are already familiar with this popular market adage as it is a commonly used quip in our industry.

All it really means is that you can't get something for nothing from the market.

Have you ever bought a high-yielding stock for the dividend and rode it into a big drawdown just for them to announce they're cutting the payout?

Did you listen to a friend about a biotech stock that was supposed to rip higher on positive FDA results... but it actually gapped lower?

How about following the analyst community into a stock that was a consensus buy... until it turned out not to be?

In all of these scenarios, the investor is simply looking for a free lunch. And 9 times out of 10, these situations don't work out. There are no easy investments or get-rich-quick tricks on wall street. At least not sustainable ones. You have to put in the work.

One rule that I live by for my own investing is this: "If it seems too good to be true, it probably is."

Some stocks are just built different.

Right now it's hard to ignore how the bond market is impacting certain stocks, and which ones of those are already ahead of the game.

You see in December, we've seen credit spreads narrowing to levels not seen since the pandemic crash in 2020. The Yield curve has been steepening as well. And rates in general, particularly the 10yr and 30yr held their key levels and started moving higher.

To me, all of this screams higher for bank stocks. But it's not a one size fits all scenario. There are leaders.

And I can't help but point out Customers Bancorp. This $2B Regional Bank stock has continued to make new all-time highs, despite the industry under pressure over the past couple of months.

We’re buying an $MPC Feb/Apr 70 Call Calendar Spread for around a $1.10 debit. This means we’ll be short the February 70 calls and long an equal amount of April 70 calls for a net debit

Check out our short video with the thought process behind these trades:

From the desk of Steve Strazza @Sstrazza

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. 

The point is that 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.

Welcome to the Short Report.

From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley

With the exception of US large-caps, the market remains range-bound for most risk assets. At the same time, most defensive assets are failing to catch any meaningful bid.

Gold is still chopping around in the middle of its year-to-date range. Bonds continue to trend sideways or lower. The Japanese yen recently hit its lowest level since 2017. 

And while the defensive sectors recently made multi-month highs versus the broader market, they're still trading near 20-year lows on a relative basis.

These are the kinds of assets we expect to catch a bid in an environment where investors are fleeing for safety and positioning defensively. But we’re just not seeing that.

At the same time, we haven’t seen many definitive signals supporting a more risk-on tone… until now!

While our risk-appetite ratios remain a mixed bag and most are simply range-bound, we just got a meaningful upside resolution in the High Yield versus Treasuries ratio.

I'll spare you the suspense -- we're getting long Marathon Petroleum $MPC here.

The title of today's post is not a trite pun. We are indeed positioning for a bullish move, but it may take a little bit to develop the way we want it to.

Thankfully, the beauty of options trading is that we can craft a strategy that takes advantage of a slow-developing play. So let's get right to it.

It's important to zoom out and really put what's going on into perspective.

You hear a lot about how much money is being created with fed money printing and the Powell and senator Karen yelling into the air for no reason.

It's all been well documented.

We're seeing unprecedented numbers being raised by companies issuing equity and debt, as highlighted here by the FT:

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

As 2022 approaches, the latest evidence from currency markets suggest the US Dollar Index $DXY could be stalling out.

Whether it resolves higher from the current continuation pattern is a key question with broad market implications. While dollar strength has been a headwind during the second half of 2021, we think it cools off coming into 2022.

In our view, there's a good chance a weaker dollar will actually help put a bid in risk assets in the near future. This hasn’t been the case in a while, so let’s discuss what’s changed to make us feel this way.

Notice the short-term weakness in our US dollar trend summary table:

From the desk of Steve Strazza @Sstrazza.

Welcome back to our latest Under the Hood column, where we'll cover all the action for the week ended December 24, 2021. 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.

From the desk of Steve Strazza @sstrazza

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.