From the Desk of Steve Strazza @sstrazza and Alfonso Depablos @Alfcharts
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.
How come so many investors get mad that an index, which was designed to buy more of the best stocks and less or none of the worst stocks, owns more of the best stocks and less or none of the worst stocks?
The S&P500 is up over 21% since the October low last year. In fact, last week marked the 1 year anniversary of this bull market.
Meanwhile, the Nasdaq100 is up 40% over the past 12 months (because it's a bear market?)
During this time, Technology is up 46%, Communications is up 42% and Industrials are up 22% - representing the 3 best performing groups of stocks.
One of the relative trends we must regularly evaluate is the relationship between large-caps and small-caps.
Sometimes large-caps outperform. Other times, it’s the little guys leading the way.
This ratio tells us which ones we should be focusing on.
The chart below shows the Russell 1000 Large-Cap ETF (IWB) relative to the Russell 2000 Small-Cap ETF (IWM) breaking out of a monster-basing formation.
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.
From the Desk of Steve Strazza @Sstrazza and Alfonso Depablos @AlfCharts
Markets have been able to stage a significant rebound off the lows from last week.
After some massive bullish engulfing candles Friday, the major averages - led by mega-cap growth stocks, have exhibited strong follow-through to start the week.
That changed a little today as markets gave back some gains as the dollar and rates ticked higher.
The bottom line is there is still work to do. While stocks appear to have found a tradable low, that doesn't tell us much about where we go from here.
If the dollar and rates hold current levels, things are likely to remain messy.
However, even under this scenario, we think there will be some big winners as we march forward to the end of the year. And all indications from the market suggest most of those winners will be from the tech and growth space.
Let's outline some of our favorites right here, right now.
Banks are considered one of the world's most important industry groups as they provide an excellent overview of the economic environment and overall risk appetite toward markets.
After suffering a deep decline in Q1, prices carved out a tradable low, rebounded, and settled into a well-defined trading range.
However, these laggards continue to be a concern for the financial sector and the broader market as the charts look vulnerable heading into earnings season.
Here we have Money-Center Banks $KBE, Regional Banks $KRE, and Community Banks $QABA, all of which are below their AVWAPS from the May lows:
