What we do here is take a chart that’s captured our attention and remove the x and y-axes as well as any other labels that could help identify it.
This chart can be any security, in any asset class, on any timeframe. Sometimes, it’s an absolute price chart. Other times, it’s on a relative basis.
It might be a ratio, a custom index, or maybe the price is inverted. It could be all three!
The point is, when we aren’t able to recognize what’s in front of us, we put aside any biases we may have and scrutinize the price behavior objectively.
While you can try to guess the chart, the point is to make a decision…
So let us know what it is: Buy, Sell, or Do Nothing?
From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
The US Dollar has been trapped in a sideways trading range for the trailing 12 months now. The primary trend is lower, and we continue to see near-term weakness from the DXY Index as well as most USD crosses.
Commodity-centric currencies have been some of the best performers versus the Dollar since early last year, although most of them have been correcting since Q1 or Q2, giving back a good deal of their earlier gains.
So, will we see a resurgence back to those risk-on pairs, or will they keep sliding lower against the Dollar?
Today, we’re going to focus specifically on the currencies of some of the largest oil-producing countries in the world.
This should give us information not just about currency markets, but also commodities and risk assets in general.
Let’s talk about it.
An easy way to aggregate and measure their performance as a group is by analyzing our Petrocurrency Index. It includes currencies like the Canadian Dollar $CAD, the Russian Ruble $RUB, and the Brazilian Real $BRL, among others.
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.
We've already had some great trades come out of this small-cap-focused column since we launched it late last year and started rotating it with our flagship bottoms-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 we think it’s time we branch out a bit and allow some new stocks to find their way onto our list.
The way we’re doing this is simple...
To make the cut for our new Minor Leaguers list, a company must have a market cap between $1 and $4B. And it doesn’t have to be a Russell component--it can be any US-listed equity. With participation expanding around the globe, we want all those ADRs in our universe.
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 context of the big picture 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 Top 10 report was just published. In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Stocks Or Bonds?
When the market provides us mixed signals, we dive beneath the surface to find more clues about the current environment. Here's the S&P 500 relative to U.S. Treasury Bonds, with the Russell 2000 overlaid. Note the similarity between them during the past year. When comparing stocks vs bonds it tells a story of not just where the alpha is but also how market participants are behaving. Similar to strength from small-caps, the ratio is a great gauge of risk appetite. Hence, why they look the same.
SPY/TLT tried to break out this week, but couldn’t quite get it done. As long as these charts continue to be trapped in their sideways ranges, expect more messy action for equities and risk assets in general. But, if and when we get upward resolutions, be ready for a more risk-on environment.
Instead, our focus has been on expanding global breadth. We believe the burgeoning participation in international markets is constructive for US markets, specifically for cyclical areas.
But are we beginning to see any signs of breadth expansion domestically?
In today’s post, we'll switch gears and turn our attention stateside to address participation among US stocks.
Let’s dive in!
Here’s a look down the cap scale at all three S&P indexes, from large to small:
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
Industrial metals have been one of the strongest subgroups within the commodity complex over the trailing year.
The parabolic advance in Steel futures off last year’s lows is an excellent illustration of this.
But lately, we see more and more commodities shift toward sideways trends in the intermediate-term. And lots of them are doing so trapped beneath overhead supply.
A quick glance at charts like crude oil or copper tells this story well -- the last four months have been a chop fest for most.
We questioned whether this consolidation would resolve in the direction of the primary downtrend--in which case we would expect a break lower.
Or maybe buyers would step in and defend those former lows once again.
Despite the lack of bearish momentum readings, many of you wanted to sell on a break below support, citing the primary trend as a major deciding factor.
And that's basically where our heads were, too, as it's always easier to go with the trend.
So what are we selling? Or should I say... buying?
The chart was the Small-Cap Technology ETF $PSCT… but it was inverted!
So those who wanted to sell on a breakdown were actually buyers, and vice versa.
Here’s a fresh look at the chart, right side up this time:
From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridg
Money really likes to flow where it's treated the best… and as far as sectors and even most industry groups go, there simply isn't much alpha out there at the moment.
In analyzing relative trends, we’re always aware of how the overall stock market is performing against defensive assets.
In today’s post, we’re going to check in on those sectors investors pile into when seeking safety as opposed to positioning for risk.
Utilities, Real Estate, and Staples... the “bond proxy” groups. Let's dive in.
Here's a custom index of them all charted relative to the broader market.
Notice how the relationship has stopped trending lower since it bottomed back in July.
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 & relative strength had a baby, leaving you with the best of the emerging dividend giants that are outperforming the averages.
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
We held our September Monthly Strategy Session last night. Premium Members can access and rewatch it here.
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.
