From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
Interest rates, inflation expectations, and commodities are all on the rise.
But as these pieces of the intermarket puzzle fall into place, it’s hard to make sense of the strength in the US Dollar Index $DXY. That’s also been on the rise recently.
Even other areas of the currency market don’t quite fit with the action we see in the USD. We pointed out the absence of risk-off behavior in a post last week where we highlighted the broad weakness in the yen as well as AUD/JPY making new multi-month highs.
So what’s going on with the US Dollar Index?
Let’s look under the hood at some individual USD pairs and their trends across multiple timeframes to see what the weight of the evidence is currently suggesting.
First, let’s look at the short-, intermediate-, and long-term trends in some of the main US dollar crosses:
Now for the risk on developments that we've seen in recent weeks. As you can see here Consumer Discretionary stocks are breaking out relative to Consumer Staples.
If there is one cheat code in the stock market, this may be it.
The bottom line is this: if Discretionary is outperforming Staples, shorting stocks is not the best of strategies:
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. What remains is a list of stocks that large financial institutions are putting big money behind… and they’re doing so for one reason only: because they think the stock is about to move in their direction and make them a pretty penny.
What we do here is take a chart that’s captured our attention, and remove the x and y-axes as well as any other labels that could help identify it.
This chart can be of any security, in any asset class, on any timeframe. Sometimes it’s an absolute price chart, other times it’s on a relative basis.
It might be a ratio, a custom index, or maybe the price is inverted. It could be all three!
The point is, when we aren’t able to recognize what’s in front of us, we put aside any biases we may have and scrutinize the price behavior objectively.
While you can try to guess the chart, the point is to make a decision…
So, let us know what it is… Buy, Sell, or Do Nothing?
Welcomeback to our latest "Under The Hood" column, where we'll cover all the action for the week ended October 15, 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.
These are the registration details for our live conference call for Premium Members of All Star Charts.
This month’s Conference Call will be held on Tuesday October 19th at 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.
There is more money being allocated to risk assets than there are risk assets to feed that demand.
It's not about the Fed, or the Trump or the COVID.
Prices go up when there's more demand than supply for assets. And that's what we see.
Here's exhibit A. Crude Oil is making new 7-year highs.
And why do you think that is happening? Is it because there's more supply of oil than there is demand for it? Or is it because there is more demand than supply?
You can complain about higher oil prices, or you can celebrate. You get a choice in this country.
Which one will you be?
I'd rather be celebrating with friends and family that we're all paying twice or even 3 times the price at the pump!
You can always check out the list of my favorite trade ideas here.
(While on vacation until Oct 26th, I’m going to be sharing some anecdotes on my favorite trading strategies: why I use them, when, and how I manage them once they are on.)
The majority of trades we do here with All Star Options tend to be directional in nature. And why not? We're leveraging best-in-class technical analysis to give us an uncommon edge to participate in emerging and/or continuing trends. And if we know anything as Traders, we know that if we have an edge, we should attempt to execute against that edge as often as possible.
Meanwhile, I recognize there is an entire cottage industry around "selling options premium" and for good reason -- it works! That doesn't mean it always works nor does it mean it's easy. I just don't like to make it my only thing.
That said, one of my favorite strategies is to sell premium via Short Strangles.
I agreed to give a presentation Saturday morning about Crypto Currencies.
But if you've seen me walk through my charts in the past, you know I have a hard time sticking to one asset class.
If we're talking about stocks, how can we do that without talking about the bond market?
If we're talking about Commodities, how can we have a serious conversation without including interest rates?
And if we're talking about Crypto Currencies, how can we not include the bank stocks with Crypto exposure, who are benefiting from both rising crypto prices AND rising interest rates?
Well, that's what happened Saturday morning.
A conversation that was supposed to be about Crypto, turns into an all out blitz of rising asset prices due to an asset shortage that we're seeing worldwide.
The reason risk assets are going up in price has nothing to do with the economy, or the federal reserve or who the president is....
Our International Hall Of Famers list is composed of the 50 largest US-listed international stocks, or ADRs.
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 big US names on our original Hall Of Famers list.
The beauty of these scans is really in their simplicity.
We take the 50 largest names each week and then apply technical filters in a way that the strongest stocks with the most momentum rise to the top.
Let’s dive in and take a look at what some of the largest stocks around the world are doing.
