From the desk of Steve Strazza @Sstrazza

This week's Mystery Chart exercise gives us a nice glimpse into the current sentiment amid the recent volatility, so thanks to all those who responded. The overwhelming majority of you we're either selling or doing nothing, which comes as little surprise.

Many of you wanted to sell this chart aggressively and even cited the current market environment as part of you're reasoning. But! The chart was inverted... so all those who were pounding the table to short it were actually buying the Nasdaq 100 (QQQ) relative to the Russell 3000 (IWV).

I'm curious to see how, if at all, this changes your perspective on the chart. Tweet me @sstrazza with your thoughts!

From the desk of Steve Strazza @Sstrazza

In a post earlier this month, we scanned the S&P 500 for the strongest uptrends so that we'd be prepared to buy stocks when the market stabilized. Well three weeks and an additional 25% drawdown later, and we're going to do a similar exercise.

The last two days' rally in stocks confirmed bullish breadth divergences which suggest a tradeable bottom is near and put the S&P 500 back above its 2018 lows around 2350, giving us a well-defined level to manage risk against. If prices fail to hold this level, all bets are off, but as long as we're above it, we think the bias is to the upside over the coming weeks to months. As such, we're looking for long opportunities that offer asymmetric risk/reward setups in the strongest stocks, three of which we outline below.

From the desk of Steve Strazza @Sstrazza

We are constantly analyzing market breadth. We do this not just for insight into the strength of the current trend but also because it helps us identify key turning points. We outlined a variety of deteriorating breadth measures in a post last month to support our bearish outlook on stocks, and the signal turned out to be quite timely as the market collapsed soon after.

With the market now severely oversold amid one of the swiftest bear markets in history, we're looking to breadth measures once again for signs of a tradeable low.

From the desk of Steve Strazza @Sstrazza

New Mystery Chart!

For those new to the exercise, we take a chart of interest and remove the x/y-axes and any other labels that would help identify it. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. Maybe it’s a custom index or inverted, who knows!

We do all this to put aside the biases we have associated with this specific security/the market and come to a conclusion based solely on price.

You can guess what it is if you must, but the real value comes from sharing what you would do right now. Buy, Sell, or Do Nothing?

From the desk of Steve Strazza @Sstrazza

Just as we focus on the strongest markets and stocks to find opportunities during equity bull markets, we look to identify the weakest areas during bear markets. We just want to be in the strongest trends, regardless of their direction.

A few weeks ago we ran some statistics to highlight US stocks that were bucking the trend during the selloff, as those would be the areas to focus on if/when equities eventually regained their footing. While many names have fared well, we were a bit early as the market soon broke below our risk management levels, putting us in a position where we no longer want to be long stocks.

From the desk of Steve Strazza @Sstrazza

New Mystery Chart!

For those new to the exercise, we take a chart of interest and remove the x/y-axes and any other labels that would help identify it. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. Maybe it’s a custom index or inverted, who knows!

We do all this to put aside the biases we have associated with this specific security/the market and come to a conclusion based solely on price.

You can guess what it is if you must, but the real value comes from sharing what you would do right now. Buy, Sell, or Do Nothing?

From the desk of Steve Strazza @Sstrazza

Thank you to everyone who responded to this week’s Mystery Chart.

We had a few buyers but most of you were selling at this logical level of interest or exercising patience to see how prices react here. A few responses also pointed out that this likely isn't the best time to enter on the long side but are anticipating an eventual breakout and would be buyers if and when we get it.

This is the same camp we'd fall into and we provide details why in the original Mystery Chart post. With that as our backdrop, let's look at the chart.

From the desk of Steve Strazza @Sstrazza

We look at a variety of intermarket ratios that span just about every asset class in order to get a read on interest rates. Here is one that we don't discuss too often, but its relationship with the 10-Year Yield is obvious from looking at the chart below.

The S&P High Beta/S&P Low Volatility (SPHB/SPLV) ratio made significant lows around the same time and place as the 10-Year has several times over the past decade.

From the desk of Steve Strazza @Sstrazza

New Mystery Chart!

For those new to the exercise, we take a chart of interest and remove the x/y-axes and any other labels that would help identify it. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. Maybe it’s a custom index or inverted, who knows!

We do all this to put aside the biases we have associated with this specific security/the market and come to a conclusion based solely on price.

You can guess what it is if you must, but the real value comes from sharing what you would do right now. Buy, Sell, or Do Nothing?

From the desk of Steve Strazza @Sstrazza

In this report, we cover our Coronavirus Custom Index which is comprised of stocks we believe benefit from the coronavirus as well as a playbook to profit from these strong performers. 

To be clear, we didn’t find these stocks looking for coronavirus plays, we found these through our ordinary process of scanning for relative strength. We were simply looking for stocks that have been bucking the trend during the recent selloff. With that said, it was hard to ignore the results when we thought about what these companies do.

Here is our All Star Charts Coronavirus Custom Index making higher highs and higher lows recently while the broader market squanders near bear market territory.

From the desk of Steve Strazza @Sstrazza

Thanks to the handful of you for playing and entertaining this week’s Mystery Chart.

My apologies if this one was a bit of a layup, but that was the point. You were all buyers and so are we. Since we're all in agreement let’s dive right in and talk about why we’re bullish on this chart but more importantly, why it matters.

From the desk of Steve Strazza @Sstrazza

If you're reading this it's probably because you've read our Table of the Week where we identified roughly 100 of the strongest stocks in the S&P 500. After digging into the charts of all these stocks, we came up with a handful of setups that we believe are currently offering the best reward/risk. Here they are, in no particular order.