From the desk of Steve Strazza @sstrazza

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...

From the desk of Steve Strazza @Sstrazza

Welcome to our latest Minor Leaguers report.

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 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.

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...

Two weeks ago, we detailed why we're sitting on the sidelines with an expectation of sideways price action to close the year.

Fast-forward to today, and the same diagnosis applies for Bitcoin and the broader crypto asset class. The macro risk environment is beginning to favor the bear camp, and it's certainly not a time to be aggressively pushing longs.

Meanwhile, the spot flows seen on-chain continue to diverge from price action, suggesting that once this consolidation phase is complete, an upward break appears to be the higher likelihood scenario.

We're watching for Bitcoin to reclaim 53,000 before we put our elevated cash back to work in positions.

Until then, we're avoiding a good majority of trading action in this low-conviction tape where whipsaws have become commonplace.

One nice thing about recent stock market volatility is that there are some bullish setups we can take advantage of with some clearly defined nearby risk levels, which give us entries with solid reward-to-risk scenarios.

And of course, in a theme we've been repeating over the past week, this volatility is also helping us more easily find where the hidden relative strength is.

So let's dive right into an idea that was surfaced in the recent Hall of Famers report.

From the desk of Willie Delwiche.

Key Takeaway: Falling bond yields do not inspire confidence. Industry group trends faltering as breadth weakens. Holiday cheer has already turned sour.

• After last week’s big jump from Consumer Staples (which held in at #4 this week), it was Utilities making a big move (from #9 to #6) in the rankings. Defensive groups are seeing strength on an absolute basis (more on that in a moment) and that is translating into higher sector rankings and improving conditions at the industry group level.
• Real Estate has taken over the top spot in the rankings while cyclical sectors seem to be in a race to the bottom.

From the desk of Steve Strazza @Sstrazza

Our Top 10 Charts 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.

Are The Worst Stocks Bottoming?

One thing we’re looking for to signal that the selling pressure has passed is the weakest areas carving out bottoms. In recent sessions, we’ve actually seen resilience and some relative strength from US growth stocks. Many of 2020s top-performers have endured significant losses already this year, and the ARK Innovation ETF is a great barometer for what’s taken place. When we look at a weekly chart, there is a hammer candle slightly beneath the May lows. If we see some upside follow-through, this could result in a failed downside move and fast move in the opposite direction. We’re also seeing signs of selling pressure waning on the daily chart as buyers continue to step in during the intraday session and send prices higher. This is illustrated by a handful of long lower wicks at the recent lows, which is evidence of strong demand at current levels. We think things are setting up for...

From the desk of Steve Strazza @Sstrazza

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.

Macro Universe:

• This week, our macro universe was in the red as 74% of our list closed lower with a median return of -0.98%.
• The Volatility index $VIX was a massive winner again, closing out the week with more than a 15% gain.
• The biggest loser was US 10-Year Yield $TNX, with a weekly loss of -5.84%
• There was a 6% drop in the percentage of assets on our list within 5% of their 52-week highs – currently at 45%.
• 17% of our sector...

This week we’re looking at a short setup in the Oil and Gas space. We've seen growing weakness in the stocks of this sector and are looking at the setups here.

Let's take a look at what we have today!

We retired our "Five Bull Market Barometers" in mid-July last year to make room for a new weekly post that's focused on the three most important charts for the week ahead.

This is that post, so let's jump into this week's edition.

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley

We study a wide variety of sentiment data as we incorporate many different indicators into our day-to-day analysis.

In its simplest form, sentiment tells us how certain market participants or investors feel about the market.

Are investors feeling bullish and increasing their exposure to risk?

Or, are investors feeling fearful and positioning defensively?

More often than not, these are contrarian indicators that work best when at extremes.

One of our favorite sets of sentiment data comes from a weekly report published by the Commodity Futures Trading Commission. It is called the Commitment Of Traders, or COT report, and it simply outlines how various participants are positioned in futures markets.

We get lots of questions regarding how we analyze the COT report, so let’s talk about two of the main ways we find value in this information.

It's Saturday Morning Chartoons time. 

This is the weekly post that aggregates all the charts we put together throughout the week and organizes them all into one, easy to flip through deck.

You can find the whole list of trades here.

Below you'll find the full PDF of this week's charts:

From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge

Outside of the large-cap averages in the US, most stocks have been stuck in sideways trends for much of 2021. We’ve seen breakouts fail in both directions over the past two months, as sloppy price action continues to govern the broader market.

As we discussed in our last intermarket post, this range-bound action has not just been the case for stocks on an absolute basis. We’re seeing the same thing from commodities, cryptocurrencies, and even our risk-appetite ratios. Risk assets have simply been a mess.

Let's take a look at one of our favorite risk-appetite ratios, as there's been an important development in the discretionary versus staples relationship. 

Here is large-cap consumer discretionary $XLY versus consumer staples $XLP: 

Notice how this ratio was rallying aggressively coming into 2021. Now think back to what stocks and other risk assets were doing during this time. Everything was working, right?

Consumer discretionary...

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley

Not unlike the major US equity indexes, the commodity space is still range-bound as we head into year-end.

When we compare the trailing 12-month returns of individual groups, we get a sense of how bifurcated the commodity market has been. Another thing that stands out is just how weak precious metals have been relative to their peers.

While the rest of the asset class has posted solid gains on the year, gold and silver continue to trend lower. If this is truly a commodities supercycle, we’d expect to see some participation from this group. And, considering they’ve been in a downtrend for almost 18-months now as the rest of the space has been working, we’d expect it to happen soon. 

Let’s take a closer look at what’s going on with these shiny rocks.

First, here’s a chart with the trailing 12-month returns of our four major commodity indexes - energy, precious metals, base metals, and ags:

...

From the desk of Steve Strazza @Sstrazza

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. Check it 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.

Here’s this week’s list:

And here’s how we arrived at it:

• Filter out any stocks that are below their May 10th high, which is when new 52-week highs...

From the desk of Willie Delwiche.

The Fed is turning off the liquidity spigot and expects to start raising interest rates next year. There are plenty of historical studies showing the relatively benign impact of the first one or two rate hikes. This cycle, though, will be a bit different than what has been experienced in the past. Historically, the Fed is leading the way with interest rate hikes, moving toward tightening ahead of other global central banks. The muted impact of those initial rate hikes may be partly due to the fact that most central banks have still been accommodative.  That is not going to be the case this time around. Nine central banks have raised their interest rates in December alone and by the time the Fed makes its first move, a majority of central banks will likely be tightening.  

This is the video recording of our December 17, 2021, All Star Charts Crypto Weekly Strategy Session.

The wild ride in the stock markets this week is nothing if not revealing to us where the relative strength is hidden!

There's always a silver lining to volatility. The vulnerable stocks get exposed, the weak hands get shaken out, and what we're often left with is a pretty clear picture of where the strength is and which names are likely to lead us higher when things calm back down.

With this in mind, today's trade comes from the latest Under the Hood Report.

We have a new Options trade up this week.

We're buying an $MMC April 170/200 Bull Call Spread for around a $7.50 debit all in. This means we’re long the 170 calls and short an equal amount of 200 calls..

Check out our short video with the thought process behind these trades:

The US Dollar has been at the center of attention for the past few weeks. And who can deny the move that has come through in the Dollar Index?!

While the Dollar has halted its montser move for now, the dollar currency pairs are moving in a direction that's worth noting.

So let's take a look at Dollar with the INR.

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

It was only a month ago that we discussed the TIPS versus Treasuries ratio hitting its highest level since 2013 as investors prepared for rising inflation.

Fast-forward to today, and the inflationary backdrop looks very different.

Inflation breakeven and forward expectation rates have rolled over aggressively since the middle of November. This is illustrated by the TIP/IEF ratio, which recently undercut its May highs. Combine this action with the lack of follow-through on last week’s kick save from the 30-year yield, and the prospects of rates rising across the curve aren’t looking too hot.

But what does that mean for risk assets?

For starters, commodities will miss out on all the usual tailwinds that come with inflationary pressure. Let’s take a look at a chart that highlights that relationship.

Below is the TIP/IEF ratio overlaid with the CRB Index:     

...