Welcome to our "Under The Hood" column for the week ended September 11, 2020.
What we do 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.
We use a variety of sources to generate the list of most popular names. There are so many new data sources available that all we need to do is organize and curate them in a way that shows us exactly what we want: A list of stocks that are seeing an unusual increase in investor interest.
Whether we're measuring increasing interest based on large institutional purchases, unusual options activity, or simply our proprietary lists of trending tickers... there is a lot of overlap.
The bottom line is there are a million ways to skin the cat. Relying on our entire arsenal of data makes us confident that we're producing the best list each week and gives us more optionality in terms of finding the most favorable trade setups for our clients.
When money is coming out of one sector and going into another one, we call that sector rotation. It's a classic characteristic of a bull market, or for that matter, a market where we are generally being rewarded for owning stocks, not for selling them.
Let's go back to February. At that point, we were seeing laggards dragging the market lower. Things like Financials and Materials were making new relative lows and had already begun their declines. In fact, both of these sectors peaked in December, months before the overall market peaked. That's part of why we got so bearish.
The Fixed Income, Commodity, and Currency markets are near and dear to my heart. Ever since I began learning Technical Analysis, I've always loved analyzing things that are "off the beaten path." This included everything from Interest Rates to Soybeans to the Norwegian Krone. Equities are great and all, but this is the stuff that gets me up in the morning.
In addition to the blog posts we do on the site, I've wanted to explore new ways to share that passion with you all and show why even if you're not investing in these markets directly, they're worth paying attention to.
That brings us to my weekly show, "What The FICC?"
In this weekly video series, I'll be highlighting the most important chart or theme from these three asset classes while doing my best to tie that analysis back to Equities through an intermarket signal or a trade idea.
Thanks to everyone who participated in this week's Mystery Chart.
A lot of mixed responses from this one. Some of you were buyers at support, while others were erring in the direction of the recent downtrend and looking for a resolution to the downside.
With that as our backdrop, let's just right into it.
These are the registration details for the live monthly conference call for Premium Members of All Star Charts.
This month’s Conference Call will be held onTuesday September 15th 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.
I had a great conversation yesterday with Todd Sohn of Strategas, and our very own Steve Strazza, about Sector Rotation. We talked about this rotation, in theory, and also discussed what the current environment is suggesting.
The video of that call will be up shortly on our Youtube Channel. Make sure you're subscribed so you never miss an update! Subscribe for Free here.
The 3 of us were pretty much on the same page that we're getting healthy rotation among sectors and this will likely lead to new all-time highs across the major US Indexes, Sectors and Market Caps. So I asked Todd, what would you tell the Doom & Gloomer out there who is watching/reading this saying to him/herself that we're all completely full of it and the market is about to crash.
Right away he said, "Show them the Equal-weight Industrials breaking out to new highs relative to Equal-weight S&P500:
You'd be forgiven if you read this headline and completely discarded this blog post to the trash heap. I feel you. But assuming you're reading these words, you seem to be willing to entertain the possibility of "unpopular" ideas.
In my experience, when getting bearish on a stock or an index, it is rarely a smart play (statistically speaking) to purchase straight long puts. The reason being that if I'm spotting a bearish opportunity, then likely the rest of the world sees it too and therefore people are probably getting nervous and beginning to hedge their long positions with puts or are starting to bid up speculative downside bets. In either case, it usually inflates the implied volatility in the options pricing, making puts an unfavorable purchase.
But every so often, we find a case where a stock or an index has really just worn people out and people have just lost interest. And when the security starts to show signs of losing support, the opportunistic speculator can get ahead of the crowd before the opportunity becomes obvious to everyone else.
This appears to be the situation in the Energy Sector ETF $XLE.
This week on the show, Howard and I talk about the value in finding people to synthesize information for you. Howard is one of the best people I know at doing this, and I've picked up a few tricks from him over the years.
We can't be experts in everything. But with new tools and technology, we now have the ability to rely on other subject matter experts to point us in the right direction and give us perspective on how they see the world. I've found this process to be incredibly valuable. I encourage you to try it!
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 relative strength trends at play and preview some of the things we're watching in order to profit in the weeks and months ahead.
Last week, we followed up on some of the charts we recently cautioned were approaching overhead supply to see how they reacted to these critical levels.
Since we experienced a bit of a selloff on Thursday and Friday, this week we’re going to keep it simple and take a high-level look at some of the most important assets in the world and assess any damage that was endured...
Welcome to this week’s edition of Louis’ Look, where I write a brief note for the blog to document the lessons I’m learning every week. You can read the previous post here. This week, I want to focus on how market leadership is always in flux, and the best way to identify these changes is through, you guessed it, price.
Welcome to this week's edition of "Under The Hood."
What we do is analyze the most popular stocks over the trailing week and find opportunities to either join in and ride these momentum names higher, or fade the crowd and bet against them.
We are using a variety of new sources to generate the list of most popular names. There are so many new data sources available that all we need to do is organize and curate them in a way that shows us exactly what we want: A list of stocks that are seeing an unusual increase in investor interest.
Whether we're measuring increasing interest based on large institutional purchases, unusual options activity, or simply our proprietary lists of trending tickers... there is a lot of overlap.
The bottom line is there are a million ways to skin the cat. Relying on our entire arsenal of data makes us confident that we're producing the best list each week and gives us more optionality in terms of finding the most favorable trade setups for our clients.
What's the bear case for equities if Financials start to outperform for the first time in, what feels like, forever?
A funny thing happened this week. The Nasdaq, as well as some of the major Large-Cap US Indexes, were under pressure for a couple of days. But did you realize which which sector was the best performer during that selling?
Financials.
Wait, what? Relative strength in Financials?
Looking at this a little deeper, if Financials were ever going to start to outperform, this would be a perfectly logical place for that to start. In fact, this is exactly where they started to outperform after the Financial crisis:
