Is this it?

Are the bears trapped, and now we rally on higher?

As we've said for those with shorter-term time horizons, there's nothing wrong with taking a swing if Bitcoin's above these lows.

The bears in the derivs are growing too, with funding rates across all exchanges falling back into the negative territory despite Bitcoin's recovery into the day.

From the desk of Willie Delwiche.

Key Takeaway: Optimism has begun to cool as sentiment relieves the excesses of early summer. Yet, we are a far cry from a complete unwind that cyclical damage suggests is necessary. As investors become more risk-averse, we are looking for evidence that pessimism has become widespread and excessive (more II bears than bulls, NAAIM Exposure Index reading below 30, ETF outflows close to or below zero on a 4-week basis, and a daily close in the VIX greater than 30). Though there is certainly an increased level of caution and concern among market participants, we haven’t seen a degree of fear or pessimism in any of our indicators that point to the warranted rebalance. For now, risks remain elevated as sentiment swings toward pessimism.

Sentiment Report Chart of the Week: Risk Appetite In Retreat

My son is playing soccer right now, and one of the things I hear over and over from the coach...

On September 22nd, Sean and Strazza hopped on a Twitter Live Stream to discuss a recent trade idea for All Star Charts Options Members.

Here's the play:

"I like an $IWM November 200/205/235/240 Iron Condor for an approximately $1.80 credit. This means I’ll be short the 205 puts and 235 calls, while protected by the 200 puts and the 240 calls. This is a defined risk trade where the most I can lose is the maximum possible value of the spread (distance between short and long strikes — $5.00) minus the credit we receive at initiation ($1.80) which equals $3.20."

To learn more about the trade and the thinking behind it, click below to watch a replay of the Live Stream.

Have you ever held a beach ball underwater and pressed down?

You can feel the pressure on your arms - the beachball is trying everything to float back up.

So what happens when you let go? It jumps into the air!

Once that pressure holding it down eases, it has nowhere to go but up.

The market is the exact same.

When everything's selling indiscriminately, we want to look for the sectors, stocks, or in this case, cryptocurrencies that are bucking the trend and pushing up against your arms.

So what's going to happen when that selling, that force holding the beach ball gives up?

It's gonna shoot higher!

That stock or cryptocurrency closing the day higher in the face of broad distribution is likely to be the next leader when that force holding everything down subsides.

We saw this take place with Solana in August, and we know how that turned out...

Now that the market finds itself beaten and bruised over the last few weeks, we need to ask the same question - where's the relative strength?

With volatility rising this week, I've been on the hunt for opportunities to "safely" sell some premium.

While there is no such thing as a sure bet in the markets, selling elevated premium in rangebound securities is one of the closest things we will find to that idea.

I was chatting with my partner Steve Strazza this morning and when I told him what I was looking for, he immediately responded: "Oh -- you want $IWM. That is the very definition of sideways action."

Sure enough, he's right. And upon closer inspection of the options chains, there is some good premium offered for sale if we're willing to go a little further out in time.

We debuted a new scan recently- The Outperformers.

The Outperformers is our newest scan that pinpoints the very best stocks in the market. It’s the fastest, easiest way to find quality names that are primed for major moves.

The goal is that as the market rally progresses, the sector rotation within the market will reflect in this scan. So while our Top/Down Analysis helps us with the broader view of the market, this Bottom/Up scan makes sure that we catch the slightest change in sentiment.

Last week, something magical happened.

Something that hasn't happened in a long time!

ITC was up by 6.83%.

If you've invested in this stock, then you know that such a move in ITC is not that common. And more often than not, the follow-through move is generally absent.

But what do we have this week?

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

In recent weeks, the market has taken a risk-off tone as dollar-denominated risk assets have come under increasing pressure. 

Major US stock indexes have pulled back, and procyclical commodities such as crude oil and copper continue to chop around beneath overhead supply. 

Interestingly, we haven’t seen much of a bid in defensive assets through the recent bout of downside volatility. US treasuries have been relatively quiet, and the dollar remains below its August highs. Meanwhile, bond-proxy sectors like Utilities and Staples continue to make new relative lows. 

None of this suggests the kind of defensive positioning that would be typical in an environment where risk assets are getting hit. 

But what about one of the most significant safe-haven assets of all... the Yen?

Let’s take a look at how the Japanese Yen is setting up against other major currencies right now and what it could mean for the market at large.

First up is the GBP...

From the desk of Willie Delwiche.

Key Takeaways:

• • Volatility shifts affect investor risk tolerances
  • Portfolios positioning reflects cautious message from weight of the evidence.
  • Watching to see if evidence argues for increasing exposure or getting more defensive

When volatility picks up, there can be a natural desire to review and reconsider or reduce all long exposure. This impulse reflects the reality that for many, risk tolerance is higher in periods of strength than in periods of weakness. Our view is that proactive risk management can lead to better outcomes than reactionary decision-making. 

That is a major reason why we spend so much time reviewing and discussing the weight of the evidence. We don't know what the future will hold, but we can increase the odds of looking in the right direction by watching where the wind is blowing....

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

Last night we held our September Monthly Conference Call, which Premium Members can access and rewatch here.

In this post, we’ll do our best to summarize it by highlighting five of the most important charts and/or themes we covered, along with commentary on each.

Let’s get right into it!

There are no called strikes on Wall Street.

In other words, we’re not penalized for not swinging, like you are in baseball. We have the ability to be patient, to a certain extent at least, depending on your mandate. But most of us don’t have mandates! Even one of the best hitters of all time struggled when he swung at bad pitches.

This is my favorite reminder that in trading & investing, we want to wait for OUR perfect pitch, and then swing, vs just swinging at anything.

Here's a clip from our Charting School, walking through this exact idea.

https://youtu.be/10CARG4h7n4

We've brought this up today as a good reminder in the face of all this volatile action taking place in the crypto complex over the last few days.

Here's what we outlined in yesterday's crypto note:

The bottom line is that if Bitcoin’s below 46,000-47,000, things are likely to remain messy over more meaningful timeframes.

But for those with shorter-term approaches, there’s nothing wrong with taking a...

This is the video recording of the September 2021 Conference Call.

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 reason only: because they think the stock is about to move in their direction and make them a pretty penny...

From the desk of Willie Delwiche.

Key Takeaway: Indexes caught up to and are now catching down to the median stock. Price and pessimism can fuel a snowball of volatility. The weight of the evidence argues for caution.

• Financials moved back into the top spot in this week’s rankings. It holds the top spot in the equal-weight version of the large-cap rankings as well, suggesting broad strength within the sector. Utilities & Materials saw big drops in the rankings and relative weakness in those sectors is present across various capitalization levels.
• Sector-level weakness in Utilities is confirmed in our industry group heatmap. Other areas of broad deterioration include Capital Goods, Tech Hardware, and Real Estate.

From the desk of Steve Strazza @Sstrazza.

Welcome back to our latest "Under The Hood" column, where we'll cover all the action for the week ended September 17, 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.

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.

Watch this video for a "behind the scenes" look at our process.

Whether we...

The game plan in the markets over the past several quarters has been to buy the dip whenever the S&P 500 approached its 50-day moving average of prices.

So naturally, I spent the weekend thinking about some long trades that I wanted to put on today -- thinking the same old game plan was likely to continue.

Then I woke up to S&P Futures showing the largest gap down opening we've seen in a while and $SPY indicated to open significantly below its 50-day moving average for the first time in seemingly forever.

In other words, the market was telling me to rethink my bullish ideas.

That's the smell of risk-off...

47,000 was the level, and Bitcoin did not hold it.

Here's what we laid out last week:

For those with a shorter timeframe, the bias is higher above 47,500 toward the former crash highs of 53,000:

Otherwise, if this breakout fails to hold, expect more messy action in the coming days.

And fail it did...

As the old saying suggests, from failed moves come fast moves in the opposite direction:

This 46,000-47,000 level wasn't just an important inflection point in the near-term, but it also coincided with Bitcoin's last level of defense before crashing in May.

If we're below this zone of overhead supply, the bias is sideways to lower.

And as we said in last week's conference call, that's no reason to be long an asset!

...