We held our June Monthly Conference Call on 22nd which our Premium Members can access and rewatch here.

In this post, we'll share five of the most important charts along with JC's commentary of them and a brief explanation for each.

From the desk of Steve Strazza @Sstrazza

Welcome to the 2 to 100 Club.

Something we’ve been working on internally is using various 'bottoms-up' tools and scans to complement our top-down approach.

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 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.

Some of the best performers in recent decades – stocks like Priceline, Amazon, Netflix, and Salesforce, to a myriad of others… all would have been on this list at some point during their journey to becoming the market...

From the desk of Willie Delwiche.

Key Takeaways:

• Investors are optimistic, but momentum isn’t confirming price strength
• While indexes rally, breadth trends are stumbling
• Big rebound in earnings is already priced in

The NASDAQ Composite rallied to a new all-time high this week. The S&P 500 fell just shy of a record close of its own. While sentiment indicators suggest that investors are celebrating these new highs, a closer look shows that index-level price strength is not being confirmed by momentum. In fact just the opposite is happening, with weekly momentum trends continuing to move lower.

The Value Line Geometric Index has moved from new high to below its 10-week average in the space of a week. Momentum has peaked and is moving lower.

In every major asset class, there are typically a handful of indices to help drive our decisions from the top-down.

Whether we're looking at the US Dollar Index, the CRB, the Nasdaq, or any other variety of ETFs, these help form the basis for identifying leaders, laggards, and assessing the overall market.

The same applies to Crypto.

The only problem is, there's a painful lack of diversified indices to look at in the first place; S&P Dow Jones indices launched a Mega-Cap Crypto index in May, which only tracks Ethereum and Bitcoin, and MSCI is currently eyeing launching indexes of their own.

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.

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

From the desk of Willie Delwiche.

Key takeaway: Last week’s volatility unwound some near-term complacency, but there is still plenty of evidence of optimism in the system. Active managers increased their equity exposure and equity ETFs continue to attract inflows at a staggering pace (though certain sectors are starting to see outflows). A more challenging breadth backdrop poses a challenge, but with economic data continuing to surprise to the upside and earnings expectations being revised higher, excessive optimism may be slow to unwind. While risks are elevated from a sentiment perspective, they are not yet being manifested in terms of price. 

Sentiment Report Chart of the Week: Large Tech Outflows

Outflows among tech stocks spiked to their highest level since early 2019. The recent spike comes after historic inflows and speculative exuberance took hold of the market. Now the market environment is portrayed by waning trading volume and...

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

Check out our latest Mystery Chart!

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 of 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?

There is a special purity in the crypto markets that is absolutely fascinating to technicians like us.

It's a supply and demand game to the ultimate extreme. There are no fundamentals. There are no earnings. It's just fear and greed, no government intervention, just humans being humans.

It's pretty awesome.

I've noticed sentiment is getting pretty extreme down here and the risk vs reward opportunity here is to the upside.

30,000 has been an important level in Bitcoin going back to the prior up cycle. This was our first target after completing that multi-year base:

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

Last week, we asked the question...is it time for a dollar bounce?

And the market quickly answered with a resounding, YES!

We’ve highlighted several currency pairs challenging crucial levels of support and resistance. Last week, we saw the USD take control at those key levels. 

Both the EUR/USD and GBP/USD turned away from critical areas of former support turned resistance. The USD/CAD moved sharply higher from a major area of support. The AUD/USD broke back below a key retracement level after consolidating for the first half of the year. And the NZD/USD retreated from an area of...

From the desk of Steve Strazza @Sstrazza

As always, thanks to everyone who participated in last week’s mystery chart.

Responses were mixed but skewed in the bearish direction.

The point of our exercise was to question whether buyers would have the power to push prices back above our risk level… or if sellers would follow-through and validate the pattern breakdown.

If the former was to be true, we’d have a “bull-hook” formation on our hands. Some might call it a “bear-trap”. Either way, it’s bullish.

But that’s not what has happened at all. Since our mystery post, sellers have taken control as prices continued to collapse lower. 

We’re now looking at a decisive violation of our risk level. Let’s dive in to see what’s really going on and discuss why this chart is so important!

From the desk of Steve Strazza @sstrazza

This is one of our favorite bottoms-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...

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 Smallcap-focused column since we launched it late last year and began rotating it with our flagship bottoms-up scan, "Under The Hood."

To make the cut for our Minor Leagues list, a company must have a market cap between $1 and $2B. After applying price and liquidity filters, we simply sort by proximity to new highs in order to focus on the best players.

The goal is to catch the strongest names while they're small and still have serious upside potential. If any of these stocks ever climb the ranks to the big leagues, the returns could be huge. We're looking at 5-10x moves just to break into large-cap land!

Let's dive into this week's report and see what's happening in some of the...

From the desk of Willie Delwiche.

Key Takeaway: Fed-fueled volatility exposes weakness beneath the surface. Breadth trends at odds with index-level resiliency. Drop-in yields and defensive sector leadership consistent with elevated risk environments.

• Last week’s volatility produced a shake-up in our relative strength rankings. Materials and Financials both saw big drops, while Technology and Communication Services surged into the lead.
• Looking beyond the cap-weighted S&P 500 sectors shows a less decisive shift in leadership - Energy & Real Estate remain strong, both at the sector level and in terms of the industry group heat map.

The process of analysis is such that there are times when trends emerge and times when things are simply messy. Over the past week, with the halt in the trend of the major indices, something emerged on the charts. This something demanded attention.

Negative divergences appear when momentum does not follow the price movement. When there is a disparity between the price move and the indicator, it is a sign of caution. Not to say that a contrary position can be assumed immediately, but the sentiment certainly turns cautious!

So what is it that's hinting at being cautious in this market?

Let's take a look!

The market indices together are saying that the current trend isn't as strong as it seems. Why do we say so?

Here we have our stock universe Nifty 500. This past week's close brought along with it a negative divergence on the chart. As can be seen below, despite the price making a higher high, the indicator went on to mark a lower high. When this happens, we get an insight into the inherent strength of the market. Or in this case, weakness.

Does this mean we can go ahead and start building short positions...

It turns out that "Diamond Hands" and "HODL" are not real strategies.

How about that?

This weekend's action only just reinforces the hot mess this asset class finds itself in.

And it's not just Bitcoin and Ethereum.

Downside participation is really beginning to ramp up under the surface.

Many of these tight ranges we've been discussing these last few weeks seriously broke down this weekend.

Behind the scenes, the weight of the evidence is shifting more and more to the bear camp.

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 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.

• Macro Universe:
  • There was pervasive weakness in our macro universe this week as 85% of our list closed lower with a median return of -2.17%.
  • The VIX index was the big winner, closing out the week with more than a 30% gain and registering fresh 4-week highs in the process.
  • The biggest loser again this week was Lumber, with another massive weekly loss of -15%
  • Despite the weakness (and something we haven’t said since April), the...

From the desk of Steve Strazza @Sstrazza

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.

Using Caterpillar And Copper As A Risk Barometer

On the topic of high-beta names, here’s a behemoth from the Industrial sector. We think of Caterpillar as an index in and of itself - a barometer for global economic growth, reflation, cyclicality, etc. It’s all reflected in CATs stock price, as it is highly correlated with risk assets such as Copper and Emerging Markets. The stock recently made its first lower low in over a year, suggesting we continue to approach these offensive areas with caution. We’ll be watching to see if Copper, and others... even risk-on forex pairs like the Aussie/Yen, will continue to follow Caterpillar’s path. How much structural damage is endured before we get a tradeable bottom in these assets will provide us valuable insight regarding the future market environment for risk-taking.

...