Welcome back to our latest Under the Hood column where we'll cover all the action for the week ended December 10, 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.
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.
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 when we want to.
Let’s dive in and take a look at some of the most important stocks from around the world.
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Despite taking a hit in recent weeks, commodities have remained resilient.
Buyers are working to absorb overhead supply at some key levels. We’re seeing this kind of action in commodities across the board -- from industrial and precious metals to energy and even agriculture. We’re seeing prolonged consolidations in some of the most important contracts, such as crude oil, copper, gold, and soybean oil.
The point is simply that most commodities are correcting through either price or time. Some are digesting gains around former areas of resistance, and others have failed to sustain their breakouts.
Regardless of where they came from, most commodities are stuck in a range right now. That’s critical information supporting our messy outlook for risk assets.
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 five to nine 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 and relative strength had a baby, leaving you with the best of the emerging dividend giants that are outperforming the averages.
The percentage of new highs and other internal indicators spiked to historic extremes in 2020, indicating that we were in the early innings of a new bull cycle.
Sideways and choppy price behavior has been the theme this year. We haven’t come close to the high-water marks achieved by our breadth indicators last year, so, naturally, there are divergences.
Indeed, these breadth divergences are to be expected. Market internals tend to peak early in a cycle. What bulls don't want to see is a meaningful downside expansion in breadth.
During the recent selling pressure, we experienced some of the highest readings in new lows since the COVID crash.
In the stock market, we have software, internet, homebuilders, and gold miners. The powers at be do their best to classify all the publicly listed companies into industry groups. This allows us to break them into various baskets and analyze them at the index level.
In crypto markets, there are tokens focused on decentralized finance, the metaverse, smart contracts, and more. But unlike the stock market, the crypto asset class is still in its infancy. As such, there is no industry standard for how to group these different tokens based on what they do.
In our analysis, we'll often discuss what some of these tokens do. We use some indexes that are offered from data providers, as well as create custom indexes of our own as we see fit.
The reason we do this is for information. Aggregating tokens into groups and analyzing them as a whole allows us to glean insights about the strength or weakness of different areas of the crypto 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.
From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
The recent risk-off action came to a head last week, with commodities, stocks, and interest rates all violating key support levels.
We saw a brief flight to safety, as long-term treasury bonds $TLT broke out to their highest level since early January.
Yes, money was flowing into bonds, which is not a good look for stocks and commodities.
Bottom line, there was a lot of damage done to the primary uptrend in a very short time. Market participants needed to come out and repair the damage ASAP.
In the handful of trading sessions since the selling stopped, bulls have managed to claw back much of the losses from last week.
Buyers needed to quickly step up to the plate. And that’s exactly what we’re seeing right now, as stocks and other risk assets are rebounding aggressively off the recent lows.
As for bonds, the breakout in TLT failed, and the 10-year and 30-year both snapped back above critical levels.
From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
Last week, we pointed out that commodity-centric currencies were beginning to slide.
Our petrocurrency index was making new 52-week lows, and the Australian dollar was on the verge of breaking down. By Friday’s close, the AUD/USD cross looked to have completed a topping pattern and was trading at its lowest level since the summer of 2020.
Seeing one of the world’s leading commodity currencies break down from a major distribution pattern would not bode well for commodities and other risk assets.
But the bulls aren't ready to roll over yet. Investors are back on offense this week, as buyers have already repaired all or most of the damage that was done to stocks and commodities last week.
They needed to come out swinging after the latest flurry of selling pressure… And that’s exactly what they did!
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.
