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.
Welcome back to our latest "Under The Hood" column where we'll cover all the action for the week ended August 6, 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.
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.
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
As investors, we have plenty of options.
We can express a bullish or bearish thesis in a variety of different asset classes - from stocks and commodities to bonds and even forex or crypto markets.
But in making the decision of which one of these areas to focus our attention, we must ask ourselves a critical question every now and then...
Where is the best place to allocate our capital?
Money flows to where it is treated best. And that’s always where we want our focus to be.
Remember, we’re here to make money, not fulfill our intellectual curiosities or express our values.
Lucky for us, determining where the alpha is as simple as performing a little intermarket analysis.
So let’s dive in and do just that.
Earlier this year, when the SPY/TLT ratio hit a key extension level, we knew we were at a logical place for stocks to take a break and bonds to get a shot at taking leadership.
Dividend aristocrats are easily some of the most desirable investments on Wall Street. These are the names that have increased dividends for at least 25 years, providing steadily increasing income to long-term-minded shareholders.
As you can imagine, the companies making up this prestigious list are some of the most recognizable brands in the world. Coca-Cola, Walmart, and Johnson & Johnson are just a few of the household names making the cut.
Here at All Star Charts, we like to stay ahead of the curve. That’s why we’re turning our attention to the future aristocrats. In an effort to seek out the next generation of the cream-of-the-crop dividend plays, we’re curating a list of stocks that have raised their payouts every year for 5-9 years.
We call them the Young Aristocrats, and the idea is that these are “stocks that pay you to make money”. Imagine if years of consistent dividend growth and high momentum & relative strength had a baby, leaving you with the best of the emerging dividend giants that are outperforming the averages.
From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge
Let’s flip the script this week and take a more granular approach to our analysis of market internals.
In recent months, we’ve written at length about deteriorating breath. While it’s been our position that the divergences in these indicators are normal following an onslaught of initiation thrusts like the ones we had last year, the lack of participation beneath the surface was drying up to levels that were simply not sustainable.
This lack of confirmation has caused many to question the new highs from the S&P 500 and other major US averages. But, the major averages have masked the pervasive weakness we’ve already been experiencing beneath the surface this year.
In last week’s post, we discussed this weakness in breadth and posed the following question:
Perhaps we’ve already seen the market correct beneath the surface. Maybe that was it…
On this week's episode of the podcast, I sit down with David Keller to talk about all things behavioral finance. David is one of my favorite guys to talk to about the subject, so I reached out to him and said, "Dave, come on the pod and let's talk about humans".
He happily agreed and so we hit the ground running talking about Anchoring Bias, Loss Aversion, Risk Management, Supply and Demand Dynamics and Market Sentiment.
This wasn't just an academic endeavor. We also discussed current markets, price trends, momentum, breadth and Dave's favorite trade for the rest of 2021.
I think you're really going to enjoy this one. I certainly did!
My entire career I've been told by the old timers that many of their biggest winners have come from Mid-caps.
That always stuck with me, to the point where when we win in mid-caps, it always hits me, "Those guys were right!"
To be clear, the traditional definition of a Mid-cap stock is between $2-10 Billion in Market Capitalization (Market-cap = shares outstanding x price of the stock).
I honestly don't know how long that's been the definition, or who's in charge of making that up. But I will tell you that I don't remember a time when that wasn't the definition.
And I've been around a couple of decades already.
So is anyone factoring in Mid-cap inflation these days?
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 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.
Non-members can get a quick recap of the call simply by reading this post each month.
By focusing on long-term, monthly charts, the idea is to take a step back and put things into the context of their structural trends. This is easily one of our most valuable exercises as it forces us to put aside the day-to-day noise and simply examine markets from a “big-picture” point of view.
With that as our backdrop, let’s dive right in and discuss three of the most important charts and/or themes from this month’s call.
This is one of our favorite bottoms-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.
