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

Bond yields are breaking higher across the board. So, it’s essential to understand that some stocks do better amid rising rates, while others prosper in markets with low growth and low yields. 

For instance, cyclical and value stocks should outperform in a rising rate environment.

Meanwhile, growth, tech stocks, and any long-duration assets (bonds) typically lag. They become less attractive during periods where more economically sensitive areas offer more appealing opportunities.

And we’re already seeing this rotation into the rising rate beneficiaries, while growth stocks have come under pressure in recent weeks.

In today’s post, we’ll look at market internals of these groups to see what they suggest about recent price action.

We can compare growth to cyclicals by analyzing the ratio of Large-Cap Tech $XLK to Energy $XLE.

And we can further illustrate this growth-versus-value relationship through a variety of derivatives. They all tell similar stories.

From the desk of Willie Delwiche.

We see what we are thinking about. The first time I really became aware of this was a few years ago after we bought our Subaru. I had gone from not thinking at all about Subarus to driving one and now I was surprised to see how many other Subarus were on the road. I realized quickly that I was not an automotive trend-setter, but just being impacted by the way our brains work.   

It happened again recently, though this time with a more exciting car. 

I flew into Reagan National airport in Washington, DC, on a recent trip to visit family in Maryland. 

I met up with my sister when I arrived and headed over to the rental car counter. I had reserved a four-door mid-sized model but what I got instead was a two-door sports car. A convertible Ford Mustang, to be exact. To be clear, they didn’t force the car on me. The agent asked if it would be okay and I quickly agreed.

We debuted a new scan recently which goes by the name- All Star Momentum.

All Star Momentum is a brand new scan that pinpoints the very best stocks in the market. This time around, we have incorporated our stock universe of Nifty 500 as the base. Among the 500 stocks that we follow, this scan will pump out names that are most likely to generate great returns.

While we go through our lists of sectors and stocks on a weekly basis, we thought of launching a product that would highlight the names that are the strongest performers in our universe and those that are primed for an explosive move.

Just like The Outperformers scan, this is a list of stocks belonging to the sectors that display relative strength in the market at any given point in time. Since sector rotation is the lifeblood of a bull market, we will be ahead of the curve before the gears keep shifting.

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

We’re finally starting to see resolutions in the bond market.

The 30-year yield is back above 2.00%, the 10-year has reclaimed 1.40%, and the 5-year yield has cleared 1.00% for the first time since February 2020.

Now that it appears rates have picked a direction, what are the implications for the other two major asset classes, stocks and commodities?

As we highlighted last week, we want to look at cyclical and value stocks along with economically sensitive commodities, specifically energy and base metals.

And, in case you haven’t heard, higher yields should also put a bid in financials.

Earlier in the month, we pointed out the relationship between the 10yr-3mo spread and Regional Banks $KRE relative to the S&P 500 $SPY.

Today, we want to follow the same train of thought but apply the analysis to Broker-Dealers $IAI.

Here’s the chart of the 10-year 3-month treasury spread...

From the desk of Willie Delwiche.

Key Takeaway: Bulls continue to retreat while bears remain relatively unchanged. The current imbalance in sentiment speaks to cooling optimism and an increasing degree of caution. In recent weeks bears have been on the rise, but so far that has been a short term event. It does not mean that all has been repaired from a sentiment perspective. On the contrary, risks remain elevated. If history is any lesson, the fear and pessimism associated with a complete unwind in optimism will not materialize without instigation from downside volatility. It’s often falling prices that lead the way and fan the flames.

Sentiment Report Chart of the Week: Lack of volatility keeps investors calm

Volatility has picked up over the last few weeks, but it is not leading to much in terms of increased fear and pessimism on the part of investors. Why? Because even with the latest uptick, the number of 1% moves this year is not only well-shy of what was seen last...

From the desk of Steve Strazza @Sstrazza

Welcome to the 2 to 100 Club.

As many of you know, something we've been working on internally is using various bottom-up tools and scans to complement our top-down approach. It's really been working for us!

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, to 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, Salesforce, and myriad others – would have been on this list at...

Cryptocurrencies are every technical analyst's dream.

No gaps.

24/7 markets.

No circuit breakers.

Countless technical tools.

No arbitrary fundamental models.

No government intervention.

Pure supply and demand at work.

Without getting too philosophical, there's a trend in traditional markets toward the democratization of financial information. Nowadays, people have almost the same access to data and platforms as the bigger guys. There are projects like Koyfin that are leveling the playing field and giving the small guy opportunities they didn't have just a few decades ago.

If you like action, then you've enjoyed this week so far.

The markets looked ho-hum for most of the day Monday. But then the last hour offered us a harbinger of things to come. And Tuesday's gap and crap confirmed the bulls' worst fears.

But as usual, bears might have gotten a bit ahead of themselves as today's action seems to suggest.

Either way, the indecision and confusion in the markets is resulting in elevated options premiums -- which is what we can expect. As options players, this puts us in the position of wanting to look for opportunities to take the other side of this fear by getting short these elevated premiums.

Scanning my list of my liquid ETFs, I've found a great candidate to sell premium in.

From the desk of Steven Strazza @Sstrazza

*** Click here to read the reveal post for this Mystery Chart ***

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 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?

Today we're taking a look at Bloomin Brands, which owns Outback, as well as other restaurants like Carrabba's and Fleming's.

I can't help but look at all that former resistance from 2013-2014 and again in 2018. Is this recent correction back to that level just the retest?

Or is price going down under?

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

The US 10-year yield has made a decisive move back above 1.40% in recent sessions.

We’ve been pounding the table about this critical level for months now--and for a good reason. It’s a vital component of the global growth narrative and rotation into cyclicals.

And most investors probably aren’t prepared for it!

Yesterday, JC and Steve discussed areas that demand attention in a rising rate environment and how we should position ourselves. You can check it out here.

Think cyclical and value stocks. And don’t forget economically sensitive commodities like energy and base metals.

But what about currency markets?

For starters, most currencies versus the US dollar should be beneficiaries of rising rates. This is particularly true for commodity-centric currencies like the Australian dollar, the Canadian dollar, the Russian ruble, and the South African rand.

With the US dollar Index $DXY still...

From the desk of Willie Delwiche.

Key Takeaways:

• Bond-fueled cyclical rotation offers opportunity for better participation
• Breadth already better beyond our borders
• Commodity conflicts

Make no mistake about it, bond yields are rising. Yields on 2-year and 5-year T-Notes have surpassed their 2021 highs and are at levels not seen since their Q1 2020 COVID-related breakdown. The yield on the benchmark 10-year T-Note is above 1.50% and appears headed toward a test of the early 2021 high near 1.75% sooner rather than later. 

How high yields could rise in Q4 remains an open question. A two-handle by the end of the year does not seem far-fetched. As recently as 2019, 2’s, 5’s and 10’s all had yields above 2%. With inflation pressures showing little evidence of meaningfully subsiding the path of least resistance for bond yields appears higher. 

As we get ready for the final quarter of the year, we need to remember that while guesses are great, we don’t want to get ahead of what is actually happening. Evidence...

This could be the single most important chart in the world right now.

We cannot overstate this development.

We finally got a major resolution in the US 10-year yield, which has reclaimed that critical 1.40% level this week. This begs the question as to what a rising rate environment might mean for investor portfolios. The important implication for stock investors is the renewed tailwind for cyclicals. When rates are rising, sectors like financials, industrials, materials, and energy are all typically outperforming, which is exactly what we’ve started to see in the last week.

And of all these groups, the most direct beneficiary is the regional banks, which are back above their 2018 highs. An overwhelming proportion of their bottom line is tied to lending, so higher yields and widening spreads are a significant tailwind.

We've been covering this in...

You know me, I'm skeptical of everything and everyone.

You have to earn my trust.

And if there's one indicator in this market that has earned my trust and attention over the years, it's the relationship between Consumer Staples and the rest of the market. More specifically, Staples relative to Consumer Discretionary stocks.

You see, when portfolio managers believe stocks are going higher, they are going to overweight Consumer Discretionary stocks. These are things like Retailers, Automobiles and Housing stocks. Areas where "Consumers" spend their "Discretionary" Income.

Consumer Staples, on the other hand, are things "Consumers" are going to spend money on regardless of economic conditions, therefore being "Staples"....

As we enter the 4th Quarter of 2021, what better time than the present to check in on market sentiment.

As readers of Allstarcharts.com, we consider you to be the smart money.

So we want to hear from you!

All I'm asking is that you take a few seconds to answer these 7 easy questions, and I promise to send you the final poll results at the end of the week!

Take the quick sentiment survey here.

In the week gone by, the Realty sector performed exceedingly well. We added the index to our Three Charts for the Week Ahead post as well. The reason for that was that the index constituents are trading at crucial levels.

With the stocks jumping up above their resistances, we thought a post should be dedicated to the Realty sector.

So let's take a look at some interesting ideas.

Realty has been moving sideways for a while after breaching its 2018 highs. In the week gone by, we witnessed a strong move in the index. While the index is trading close to its overhead resistance, the strong momentum could take the price higher.

But about relative strength? Do you reckon there's something there?

From the desk of Willie Delwiche.

Key Takeaway: Bond yields on the rise across the curve. Hints of leadership rotation can be seen in sector work. Higher yields could support breadth improvements.

• Energy, which was near the bottom of the rankings from both a cap-weight and equal-weight basis as September began, has continued to gain strength. It has been the top performing sector on a short-term basis (as well as on a YTD basis) and has climbed into the middle of the overall rankings and is at number 2 on an equal-weight basis.
• Health Care and Real Estate have dropped in the rankings, though the industry group heat map shows there remain pockets of strength at the industry group level within the Health Care sector.

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 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. 

The same price and liquidity filters are applied. Then, as always, we sort by proximity to new highs in order to...