From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
As 2022 approaches, the latest evidence from currency markets suggest the US Dollar Index $DXY could be stalling out.
Whether it resolves higher from the current continuation pattern is a key question with broad market implications. While dollar strength has been a headwind during the second half of 2021, we think it cools off coming into 2022.
In our view, there's a good chance a weaker dollar will actually help put a bid in risk assets in the near future. This hasn’t been the case in a while, so let’s discuss what’s changed to make us feel this way.
Notice the short-term weakness in our US dollar trend summary table:
Welcome back to our latest Under the Hood column, where we'll cover all the action for the week ended December 24, 2021. 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.
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.
A “Santa Claus Rally” For Stocks
The last 5 trading days of the year and the first two of the new year represent a historically strong period for the market. This seasonal trend is referred to as the “Santa Claus Rally” and occurs during one of the best 7-day periods based on data all the way back to 1950. The market is off to a good start as today is the first day of this period and the S&P is already back to all-time highs for the first time since November. The main support level we have been watching in recent weeks is those September highs around 4,500. Buyers dug in and successfully defended this zone twice this month, and now they are trying to make a sustained breakout back to fresh record highs. If we hold above the November and December highs ~4,700 we’re likely to see a fresh leg higher for the broader market, and particularly US large caps.
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
As we approach year-end, we're diving into the individual commodity groups to gauge the status of the primary trends and to get a better idea of where we’re likely headed in 2022.
Last week, we highlighted precious metals -- by far the worst performers of 2021 with a -10.59% return thus far. We think there's a good chance they'll turn things around next year and start participating.
Today, we’re going to review the other end of the spectrum in terms of performance -- energy!
While base metals and ags have posted strong gains over the trailing 12-months -- 25.96% and 28.22% respectively -- energy has been the real leader, quietly printing a 46.33% gain despite recent selling pressure.
After crude oil collapsed below zero last year, the entire group had its work cut out. But they’ve covered an amazing amount of ground in a short period of time, and we think they have further to go.
Our International Hall of Famers list is composed of the 50 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 50 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.
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.
From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
Our focus has been on US Treasury yields in recent months – and for good reason.
The 30-year yield recently undercut its summer lows, and the 10-year yield briefly lost the critical 1.40 level. Both have since recovered. But these crucial rates remain stuck in the same messy ranges that have defined most of 2021.
Given the lack of decisive action in domestic yields, we think it's a good time to check in on the overseas bond markets in hopes of gleaning some insight into the potential direction of yields outside the US.
In today’s post, we’re going to switch things up and take a look at the 10-year yields from other major developed countries.
There hasn't been much to cover as far as new developments in the cryptocurrency market are concerned.
Bitcoin, Ethereum, and friends have been consolidating and correcting for the better part of two months now. We experienced some volatility in early December, but the damage was quickly repaired. Outside of this, things have been quiet. It's really just been a slow grind lower or sideways for most cryptos since November.
We continue to believe this is a messy market, and patience is the best course of action for a large majority of coins.
Let's recap some of the things we're looking for to signal the recent corrective action has passed. Then we'll check in on some of the leaders as we want to focus on these pockets of strength as they should continue to outperform when the current selling pressure subsides.
From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
Major world currencies continue to struggle against the US dollar.
Both the euro and British pound have been coiling near 52-week lows against the dollar. We’re also seeing weakness spread among commodity-centric currencies, as the Canadian dollar hit new 52-week lows this week, and the Australian dollar accomplished the same earlier in the month. As for the safe-haven Japanese yen, USD/JPY hit its highest level since 2017 at the end of November.
The bottom line is that we continue to see broad strength from the greenback.
As we wait for a resolution either higher or lower, we can look to these individual forex pairs for an indication of which direction we’re likely headed.
Let’s revisit the potential failed breakdown from the Australian dollar earlier in the month and the recent action in the Canadian dollar for clues.
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.
