Something we’ve been working on internally this year is using various bottoms-up tools and scans to complement our top-down approach. One way we’re doing this is by identifying 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.
The ASC team has been writing a lot recently about how markets are looking a bit "messy" right now. This isn't a bullish or bearish declaration, it's just an indication that many of the recent moves we've seen are likely to hit into some consolidation.
And as an options traders, the word "consolidation" should trigger thoughts of delta neutral credit spreads.
With this in mind, I've identified a good short strangle candidate.
Key takeaway: Optimism remains widespread from a cyclical perspective but history shows that it can (and in the past, has) remain elevated for extended periods of time. Options data show the record surge in call activity over the past year has stalled. If the speculative fever that has helped fuel recent gains is breaking, resiliency beneath the surface and the continued tailwind provided by better than expected earnings and economic data will be increasingly important. After an unprecedented period of positive surprises, we just don’t know how investors would respond to disappointment at this point. We do know that stocks are most vulnerable when optimism is being unwound.
Sentiment Report Chart of the Week: Speculative Fever Breaking?
On this week's episode of Bearish or Bullish, we talk about Year 2 of Bull Market cycles for stocks. Is this one those? Like 1976, like 1983, like 2004, like 2010?
What about Ethereum continuing to hold its breakout? Why is Ether doing so much better than Bitcoin?
Financials and European stocks breaking out of historic bases?
European Super Leagues? The Knicks don't suck?....what the heck is going on around here?
The messy market for stocks continues. Sure, a few stock indexes in the United States have made new highs, but how many stocks in those indexes are doing that?
Not as many, that's for sure, especially in small-caps and the Nasdaq, where we're only seeing a fraction of stocks still making new highs.
Divergences persist....
This environment continues to remind me of a lot of the "Year 2" of market cycles that we've seen before. Take the initial thrust off the 2009 lows for example. Notice the sideways chop in Year 2 of that cycle:
This is a theme we’ve discussed at length over the past six weeks. We've also discussed how we see similar developments in the Commodities and Fixed Income markets.
With this as our backdrop, are you surprised that we're also seeing similar action in the Forex markets right now?
We aren’t!
In this post, we'll highlight two traditional risk-on currency pairs, both of which are trading at critical inflection points.
Let's dive right in.
First up is the AUD/JPY cross. This FX cross is the classic risk-on/risk-off gauge within the currency markets -- and since last November, it has been sending a clear message of “risk-on!”
At the beginning of each week, we publish performance tables for a variety of different 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.
The weight of the evidence still suggests it's prudent to be a buyer, not a seller, of risk assets for more meaningful time horizons.
Shorter-term, the market looks increasingly messy. For the first time in over a year, defensive assets are beginning to stabilize at logical levels of support, while stocks and major risk groups achieve our upside targets. Even a handful of some key Intermarket ratios are potentially diverging from the broader averages.
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Check out our latest Mystery Chart!
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?
In our continued effort to identify individual equities that fit within our larger Macro thesis, we recently rolled out our latest bottoms-up scan: "The Minor Leaguers."
We write a post every other week where we outline some of our favorite setups from this universe of stocks.
We've already had some great trades come out of this column and couldn't be happier about the early feedback.
Moving forward, we'll be rotating this column with "Under The Hood" each week.
Ultimately, to make the cut for our Minor Leagues list, you must have a market cap between $1 and $2B. There are also price and liquidity filters.
Then, we simply sort the stocks by their percentage from new highs. Easy done.
After some recent events over the weekend, I thought this would be as good of a time as any to remind everyone, once again, what Technical Analysis actually is....
Technical Analysis is the study of the behavior of the market, and therefore its participants, as opposed to the goods and the services in which a particular market deals.
If you are recognizing that the trend for stocks is up, or maybe down, you are a Technician.
If you acknowledge, in any way, that the fed purchasing bonds impacts market prices, you are a Technician.
If you think volatility for stocks is low, or high, or that the Volatility Index $VIX is even a thing, you are analyzing a price derivative of the S&P500, and therefore, performing classic technical analysis.
Are you analyzing the behavior of the market and its participants, or the goods and services in which the market deals?
All of these above represent the former, and completely ignore the latter.
