From the Desk of Steve Strazza @Sstrazza

Welcome to The Minor Leaguers.

We've had some great trades come out of this small-cap-focused column since we launched it back in 2020 and started rotating it with our flagship bottom-up scan, Under the Hood.

For the first year or so, we focused only on Russell 2000 stocks with a market cap between $1 and $2B.

That was fun, but we wanted to branch out a bit and allow some new stocks to find their way onto our list.

We expanded our universe to include some mid-caps.

Nowadays, to make the cut for our Minor Leaguers list, a company must have a market cap between $1 and $4B.

And it doesn't have to be a Russell component — it can be any US-listed equity. With participation expanding around the globe, we want all those ADRs in our universe.

The same price and liquidity filters are applied. Then, as always, we sort by proximity to new highs in order...

From the Desk of Ian Culley @IanCulley

Here’s what happened last week...

A few bad actors used open profits from highly leveraged positions to purchase other assets.

When those highly leveraged positions turned against them – ripping their faces off – margin calls went unanswered, leading to a lack of liquidity.

Bonds ripped, stocks dipped, and credit spreads blew out. 

Now that the dust is settling, let’s review a few takeaways from last week’s volatility and consider what may lie ahead.

Credit Spreads Had it Right

Bonds hinted at a stock market correction months ago as widening credit spreads failed to confirm new all-time highs.  

The increasing stress on credit markets culminated in the High-Yield $HYG versus US Treasuries $IEI ratio blowing out to its lowest 14-day RSI reading since September 2008:

I doubt the market is heading toward a GFC-esque selloff, but the comparison...

From the Desk of Steve Strazza @Sstrazza

Have you heard about the rally in the bond market?

After a severe multi-year drawdown, bonds have carved out a massive basing pattern and are putting the finishing touches on a primary trend reversal.

More importantly, interest rate-sensitive stocks are following suit and rallying higher as rates come down.

The sector with the highest correlation to bonds, Real Estate, is also putting the finishing touches on a bearish-to-bullish reversal.

With the market under pressure in recent weeks, Real Estate's relative strength and resilience stands out in a big way.

This once left-for-dead group of stocks is now the sector leader over the trailing month and quarter.

The only responsible thing for us to do is dive beneath the surface and find the strongest individual names to use as vehicles to play this trend.

Before we do that, let's set the stage.

Here is a look at those multi-year bases in bonds and real estate. Notice how they look the same:

If these...

From the Desk of Ian Culley @IanCulley

Stocks aren’t the only risk assets falling this week.

Rebar, Corn, and Cotton are posting multi-year lows. Dr.Copper is slipping below four bucks. And our short cattle trades are working.  

But as most commodities slide, one area (aside from precious metals) is finding its feet.

Notice the CRB Index is carving out a two-year base while our equal-weight index hits its lowest level since early 2021:

The disparity between the two indexes comes down to their construction. 

We weigh 33 commodities equally for our index, so rebar futures carry the same weight as crude oil. 

On the other hand, crude comprises almost a quarter of the CRB Index.

These stark contrasts reveal two pertinent themes: broadening weakness among commodities and emerging relative strength from energy.

Our index captures the failed breakouts and fresh breakdowns in grains, livestock, and base and industrial metals.

Perhaps Dr.Copper had it right all along.

...

From the Desk of Steve Strazza @Sstrazza

Our Hall of Famers list is composed of the 150 largest US-based stocks.

These stocks range from 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 ServiceNow, Palantir, and MercadoLibre.

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. Click here to check it out.

The Hall of Famers is simple.

We take our list of 150 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:

*Click table to enlarge view

We filter out any laggards that are down -5% or more relative to the S&P 500 over the trailing month.

Then, we sort the...

From the Desk of Steve Strazza @Sstrazza

We love our bottoms-up scans here at All Star Charts. We tend to get really creative when making new universes as we want to be sure they will deliver us the best opportunities the market has to offer.

However, when it comes to this one, it couldn't be any simpler!

With the goal of finding more bullish setups, we have decided to expand one of our favorite scans and broaden our regular coverage of the largest US stocks.

Welcome to The Junior Hall of Famers.

This scan is composed of the next 150 largest stocks by market cap, those that come after the top 150 and are thus covered by the Hall of Famers universe. Many of these names will someday graduate and join our original Hall Of Famers list. The idea here is to catch these big trends as early on as possible.

There is no need to overcomplicate things. Market cap is a quality filter at the end of the day. It only grows if price is rising. That's good enough for us.

The bottom line is it is a bull market. We want as many vehicles and options to express...

From the Desk of Ian Culley @IanCulley

Let everyone grumble over the Japanese yen.

I get it. The yen was cast as the villain decades ago, and something or someone must take the blame for the VIX hitting 65 earlier this week.

While I prefer to point my finger at the preceding low-volatility environment, the November election, and potential rate cuts, the yen certainly played a part. 

But the real question isn’t who, what, when, where, or why. 

Instead, every investor wants to know…Was that it? 

Is the selloff over?

I think the worst is behind us. 

Here’s why…

Check out the USD/JPY chart with a 200-day simple moving average in bright blue (with the percentage above or below the long-term average in the lower pane):

In many ways the yen carry trade is a play on interest rates.

Notice the USD/JPY rocketed higher as the current hiking cycle began, rising with the widening spread between the Japan and US overnight rates. Powell’s war on inflation and Japan’s Yield Curve...

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. 

Clearly, 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.

We...

From the Desk of Steve Strazza @Sstrazza.

Welcome back to Under the Hood, where we'll cover all the action for the two weeks ended August 2, 2024. This report is published bi-weekly, in rotation with The Minor Leaguers.

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.

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.

Click here for a behind-the-scenes look at our process.

Whether we’re measuring increasing interest based on large institutional purchases, unusual...

From the Desk of Ian Culley @IanCulley

Give the bears a pass. 

Precious metals and the companies that mine the rocks are seeing red. The new lows list is expanding. And breakouts are failing. 

I don’t want to step in front of that broadening weakness.

Instead, it’s time to protect profits and cut losers. Especially those losers printing multi-year lows…

From the Desk of Ian Culley @IanCulley

Aside from gold’s new all-time highs, commodities look rough.

Natty gas is falling below two bucks. Copper is retesting four. And corn is rolling to its lowest level since 2020.

But of all the vulnerable commodities contracts, only one area stands out as a viable short: cattle.

Feeder cattle futures closed below 250 this afternoon, triggering a sell signal:

Notice the 14-day RSI led price by registering a new multi-month low ahead of today’s breakdown. The waning momentum speaks to weakening demand and the possibility of a swift move lower.  

As highlighted in June, our downside targets are now 234 and 175.

Live cattle futures also...

From the Desk of Ian Culley @IanCulley

US Treasuries are sticking a bullish reversal – an admirable feat following an unforgettable selloff.

If you aren’t buying bonds yet, it’s time to reconsider.

Here's the US T-Bond ETF $TLT trading above a rising 200-day moving average as it violates a multi-year downtrend line:

These are the early signs of a trend reversal.

Now, bond bulls want to witness the 14-week RSI post fresh multi-year highs. (We may see such a print following today’s action.)

Heading into the close, the 30-year T-bond is registering its largest one-week rate of change since spring 2020. And on a more tactical time frame, the 14-day RSI is reaching overbought conditions. 

Both data points suggest an initiation thrust, supporting further upside for US Treasuries – a move that could last weeks or even months.

But who knows how long this bond will rally? I’m guessing months, maybe quarters, but not years.

...