Unless you’ve been stuck under a rock or at the beach all summer, this is old news. And we’ve admittedly been a bit obnoxious when it comes to rehashing this theme. But usually when we find ourselves harping on something, it's because it's a big deal.
Our own behavior can be fantastic information, and it's become a part of our process to pay special attention whenever we begin to repeat ourselves a lot.
This week is no different, as the US Dollar Index $DXY provides another example of the market’s sloppy state of affairs.
Just when we thought we might finally have some decisive price action in the Dollar, Friday’s attempted breakout followed by Monday’s weakness is casting some serious doubts.
Was last week’s breakout above the March pivot highs valid?
Or was it just another failed move to add to the market’s growing list of whipsaws and fake-outs?
Welcome to our latest RPP Report, where we publish return tables for various asset classes and categories, along with commentary on each.
Looking at the past helps put the future into context. In this post, we review the absolute and relative trends at play and preview some of the things we’re watching to profit in the weeks and months ahead.
We consider this our weekly state of the union address as we break down and reiterate both our tactical and structural outlook on various asset classes and discuss the most important themes and developments currently playing out in markets all around the world.
In our last report, we pounded the table on our position that markets are a total mess these days. Another theme we hit on was how many significant risk assets were trading at or below critical levels of overhead supply.
Anything gold-related has not had any fun 2021. I can only imagine the disdain gold bugs must be feeling as they watch governments print money around the world, all things crypto soaring, and all the while their precious shiny little rocks doing jack squat.
If you've been long gold, I'm sorry.
But there's good news...
JC and I were chatting yesterday about what appears to be an opportunity in the Gold space.
Maybe, just maybe, gold has found a short-term bottom? We're not going to go out on a limb and declare THE bottom, but recent price action suggests to us that a bounce might be in store. As such, we want to get involved for a quick little hit-and-run play.
One great thing about Technical Analysis is that we don't have to pretend to be experts on every subject. Heck, I'm completely clueless on most things.
I know a lot about Baseball, a decent amount about Wine, and I can tell you the direction a chart is currently heading in. Outside of that, I'm mediocre at best on most topics.
So when we laid out the Cardano trade earlier this month, it was purely based on price. The idea was to go long $ADAUSD if it was above 1.40, which represented around $35-$40B in market cap at the time.
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.
Welcomeback to our latest "Under The Hood" column, where we'll cover all the action for the week ended August 20, 2021. This report is published bi-weekly and rotated on-and-off 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.
Stocks in the U.S. and around the world, Interest Rates both domestic and global, Commodities, Currencies and an infinite amount of Intermarket Relationships that help us identify trends across assets.
Price is what pays. Not just around here, but also for you reading this, as well as every other investor on the planet.
Nothing else is going to pay you.
So when it comes to "What is the best Technical Indicator?"
The answer is Price.
Now, in order to supplement our price analysis, we include things like Momentum and Breadth studies, Relative Strength, Sentiment, Seasonality, Volatility and a bunch of new tools and strategies that we continue to develop as markets evolve over time.
Sentiment can be a tricky one.
I think anyone who has been in markets for a while would agree.
The short answer is that there is NO single sentiment indicator that will tell you when to buy or sell stocks, or any other asset class for that matter.
Where Sentiment really stands out to me is when it is at a historic extreme, which by definition, is not very often.
This is the weekly post that aggregates all the charts we put together throughout the week and organizes them all into one, easy to flip through deck.
This chart below tells a great story.
Want to know what's happening in the Stock Market? Here's a pretty good one that helps explain:
Remember, historically the S&P Industrials have the highest positive correlation with the S&P500, of all the Sectors. It's probably because it's so diversified: Airlines, Heavy Machinery, Human Resources, Railroads, Logistics Companies, Engineering, Trucks, Security & Alarm Services, Defense Companies and the list goes on.
This could have been disaster for the Stock Market, but instead it's just more of the same: A Hot Hot Mess.
I think a great way to explain what happened this week is with the Equally-weighted S&P500. Remember, this version of the index is not heavily weighted towards those monster companies.
This index gives an equal weighting to each of the components:
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
It’s been a routine hurricane season down here so far this year. Things have picked up lately, and we’ve had a few close calls over the past week.
But storms aren’t just brewing in the Atlantic...
It’s also beginning to look dicey in the commodities market, with lots of “close calls” these days.
Strong headwinds such as the rising dollar have hit some of the most important procyclical assets this week. Apparently, there’s some geopolitical stuff going on, too. Then again, when isn’t there?
Let’s discuss what we’re seeing and try to determine just how likely these winds could evolve into a major storm for commodities.
Energy, base metals, precious metals, and ags have either pulled back from recent highs or have broken critical levels of support.
Given that many areas have experienced near parabolic advances during the past year, a corrective phase would be a healthy and welcome development. It makes total sense for commodities to digest their monster gains at current levels. And remember, sideways is always an option.
As many of you know, something we’ve been working on internally is using various bottoms-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.
