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.
From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
The rally in the US Dollar Index $DXY is stalling out.
With each passing day, dollar internals are weakening, and the prospect of a bullish resolution from the current continuation pattern in DXY is diminishing. We expect these patterns to resolve quickly. And when they don’t, that’s information.
The bottom line is evidence continues to stack against the USD.
With that as our backdrop, let’s check in on a long USD trade that was triggered in November and outline how we want to navigate the coming days and weeks.
We’ve already had some great trades come out of this small-cap-focused column since we launched it in 2020 and started rotating it with our flagship bottom-up scan, Under the Hood.
We recently decided to expand our universe to include some mid-caps…
For about a year now, we’ve focused only on Russell 2000 stocks with a market cap between $1 and $2B. That was fun, but it’s time we branch out a bit and allow some new stocks to find their way onto our list.
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.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Continuation Patterns And Primary Uptrends
As we enter the new year, let’s take a step back and discuss where we’ve come from. The following chart is an excellent illustration of the price action for risk assets in 2021. As you can see, both stocks and commodities went through a corrective phase for much of the year and remain stuck in their ranges as we head into 2022. Markets can't go sideways forever, so we expect resolutions sooner rather than later. And because the vast majority of these consolidations are simply continuation patterns within the context of primary uptrends, we’re expecting upside resolutions. The question simply remains “when?”
Check out this week's Momentum Report, our weekly summation of all the major indexes at a Macro, International, Sector, and Industry Group level.
By analyzing the short-term data in these reports, we get a more tactical view of the current state of markets. This information then helps us put near-term developments into the big picture context and provides insights regarding the structural trends at play.
Let's jump right into it with some of the major takeaways from this week's report:
* ASC Plus Members can access the Momentum Report by clicking the link at the bottom of this post.
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
In recent weeks, we’ve been diving into individual commodity groups to size up the structural trend and to get a better idea of where we’re likely headed in the new year.
Last week, we highlighted energy contracts and the fact that many are still grappling with overhead supply. And earlier in the month we covered the worst-performing area of the commodity markets - precious metals.
Today, we’re going to turn our attention back to metals and review the base metals group.
Even with the S&P 500 printing record highs, trading ranges and overhead supply stole the show in 2021 and those dominant themes are evident when we look at base metals.
Notice the strong relationship between our equal-weight base metals index and blue-chip international equities in the Global Dow Index $DGT.
Yesterday, we wrote a post about scanning for new lows, putting our own spin on a strategy called "Wall Street's only free lunch."
I was joking with JC that it felt a bit uncomfortable to search through such a weak list of stocks. After all, we’re used to scanning for strength.
But the scan was a fun exercise, and we found some weakness we want to be buying in secular leaders.
The universe wasn’t exactly full of strong stocks, as we were scanning for new 52-week lows. But that’s OK; we have plenty others for that.
In this post, we’re going to walk through another scan we did internally this week. Unlike the "free lunch," this one is more in line with our top-down approach of finding the strongest stocks in the strongest groups.
While we're still scanning for new lows, we’re doing so on a much shorter time frame, and we're adding additional filters to ensure all the stocks on our list are leaders.
Our Hall of Famers list is composed of the 100 largest US-based stocks.
These stocks range from the 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 Moderna, Square, and Snap.
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 which you can check out here.
The Hall of Famers is simple.
We take our list of 100 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.
Many of you are already familiar with this popular market adage as it is a commonly used quip in our industry.
All it really means is that you can't get something for nothing from the market.
Have you ever bought a high-yielding stock for the dividend and rode it into a big drawdown just for them to announce they're cutting the payout?
Did you listen to a friend about a biotech stock that was supposed to rip higher on positive FDA results... but it actually gapped lower?
How about following the analyst community into a stock that was a consensus buy... until it turned out not to be?
In all of these scenarios, the investor is simply looking for a free lunch. And 9 times out of 10, these situations don't work out. There are no easy investments or get-rich-quick tricks on wall street. At least not sustainable ones. You have to put in the work.
One rule that I live by for my own investing is this: "If it seems too good to be true, it probably is."
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.
The point is that 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.
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
With the exception of US large-caps, the market remains range-bound for most risk assets. At the same time, most defensive assets are failing to catch any meaningful bid.
Gold is still chopping around in the middle of its year-to-date range. Bonds continue to trend sideways or lower. The Japanese yen recently hit its lowest level since 2017.
And while the defensive sectors recently made multi-month highs versus the broader market, they're still trading near 20-year lows on a relative basis.
These are the kinds of assets we expect to catch a bid in an environment where investors are fleeing for safety and positioning defensively. But we’re just not seeing that.
At the same time, we haven’t seen many definitive signals supporting a more risk-on tone… until now!
While our risk-appetite ratios remain a mixed bag and most are simply range-bound, we just got a meaningful upside resolution in the High Yield versus Treasuries ratio.
