Welcome back to our latest Under the Hood column, where we'll cover all the action for the week ended May 27, 2022. 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.
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.
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.
We retired our "Five Bull Market Barometers" in 2020 to make room for a new weekly post that's focused on the three most important charts for the week ahead.
This is that post, so let's jump into this week's edition.
While we managed to string together a handful of up-days at the end of last week, markets have been selling off aggressively since April. Sellers remain in full control as the list of indexes resolving lower from distribution patterns continues to grow.
Finding favorable long setups in this tape hasn’t been easy. And because Inside Scoop is a “long-only” scan, there’s been little for us to do in the current environment.
Despite this, insiders have been very active in recent weeks as we continue to see more and more come out to buy the dip.
Many of the names seeing insider interest are in severe downtrends and have already endured significant technical damage.
With that said, there are still long opportunities. We just have to look a little harder, and get a bit more creative.
Today, we have a long-term base breakout as well as a short-term mean-reversion setup. While these are very different, both offer significant upside potential with limited risk.
It was comparing the current circumstances to what happened in 2010.
If you recall, the stock market ripped off those March 2009 lows, then in 2010 looked like it was completing a major top, but didn't, and then prices exploded higher instead:
It's been about over a week that the market has churned sideways. In every sideways market move, there are some areas of strengths and weaknesses.
Currently, we're looking at a minor strength coming through in the Auto index. There have been some signs of this strength off late. But we're going to focus on just a few charts here to communicate what we're referring to here.
The Auto index has been moving sideways for longer, compared to the broader market. Presently, the index just about marked a new high since February this year.
We can see in the chart below that 10,400 has been a crucial support zone for the index. Bouncing off the same level, the price is now making a move towards its resistance near 12,130. In this move, certain stocks have displayed strength in the current market environment.
Our International Hall of Famers list is composed of the 100 largest US-listed international stocks, or ADRs.
We’ve also sprinkled in some of the largest ADRs from countries that did not make the market-cap cut.
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 largest US stocks on our original Hall of Famers list.
The beauty of these scans is really in their simplicity.
We take the largest names each week and then apply technical filters in a way that the strongest stocks with the most momentum rise to the top.
Based on the market environment, we can also flip the scan on its head and filter for weakness.
Let’s dive in and take a look at some of the most important stocks from around the world.
We debuted a new scan recently which goes by the name- All Star Momentum.
All Star Momentum is a brand new scan that guides us towards the very best stocks in the market. We have incorporated our stock universe of Nifty 500 as the base this time around. Among the 500 stocks that we follow, this scan will pump out names that are most likely to outperform the market.
As many of you know, something we've been working on internally is using various bottom-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.
