What was once peanuts, the total market cap of this asset class achieved the $2T milestone at its peak earlier this year.

It's hard to believe, but there are literally several thousands of individual coins and tokens, and the list keeps growing every day.

Not only can we express our opinions in the coins themselves, but there's an expanding list of pure-play stocks, ETFs, and funds being offered to investors, too.

So today, we'll dive into some of these offerings, what sets them apart, and ultimately, how we're approaching these vehicles in the coming weeks and months.

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 'bottoms-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 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...

Some markets have been choppy for longer than others. Most of the Nasdaq has been a chop fest since February, and so have Emerging Markets. Now since about May a lot more of the cyclical and developed markets have taken a hit.

You can see that in the Equally-weighted S&P500 Index:

From the desk of Willie Delwiche.

Key Takeaways:

• Breadth downgraded to neutral as trends in the US and globally weaken
• Absence of breadth thrust regime weighs on a market struggling for direction
• Reducing equity exposure in Cyclical and Tactical Opportunity portfolios

The divergences between what has been seen in the popular averages and what is happening beneath the surface have become significant enough that we have moved breadth to neutral in our weight of the evidence framework. This leaves the scales tilted away from opportunity and toward risk. 

The most recent breadth thrust regime expired in early June and since then the percentage of global markets trading above their 50-day averages has fallen from the upper 80’s to now just 20%. One-third of the markets are not even above their 200-day averages. US industry group trends have also faltered. The percentage trading above their 10-week averages is breaking down while the percentage making new 13-...

In the recent All Star Charts monthly conference call, one of the themes that were repeated often was that stocks are in a "hot mess." In other words, many sectors are a bit stuck in the mud, offering very few signals or hints on the next direction. And when stocks aren't offering us many clues, the likely conclusion is that we'll go sideways for a while. It might be choppy, but the net result will be a whole big bowl of nothing.

With that in mind, it pays to look for opportunities to take advantage of stocks or ETFs that have somewhat elevated implied volatilities (meaning options are richly priced) and put on delta neutral credit spreads. We already did this earlier this week, and we're going to continue with another similar trade in a wildly different ETF.

The strongest of assets will not only do well on an absolute basis, but they also tend to outperform their alternatives. In the case of Bitcoin, not only are we pressing against new absolute lows, but we're seeing lower lows relative to other non-crypto-related assets.

This is NOT evidence of a healthy uptrend.

Relative strength is one of our primary tools as technicians.

The easiest way to go about doing this analysis is through relative ratio price charts.

Simply put, it's a measure of a security's performance relative to another. For this example, that's displayed as being long Bitcoin in the numerator, and short an equivalent amount of US Dollars in the denominator.

When the ratio is rising, the numerator is outperforming the denominator.  And when the ratio is falling, the numerator is underperforming the denominator.

Not only does this type of analysis allow us to evaluate the risk appetite of investors, but it also ensures we're always positioned in the right areas.

So let's dive through some of these cross-asset relationships to...

From the desk of Steven Strazza @Sstrazza 

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?

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

Earlier in the week, we held our July 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!

From the desk of Willie Delwiche.

Key takeaway: A diminishing appetite for risk combined with deteriorating breadth creates a backdrop conducive to equity indexes catching down to the weakness that has been on display beneath the surface. While bulls remain elevated overall, that could change very quickly as the stage is set for a complete sentiment unwind. Optimism has already begun to edge lower, with AAII bulls dropping to their lowest level since October. Any major signs of adversity could rock the optimistic outlook of a market that has gone relatively unchallenged for the last year. 

Sentiment Report Chart of the Week: Risk Off Resolution

After several months of consolidation our risk on/risk off ratio is resolving in favor of risk off assets. This was anticipated by the breakdown in the Broker/Dealers index (relative to the S&P 500). A combination of still elevated optimism and less appetite for risk presents a meaningful...

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

What started out as a tactical bounce in the US Dollar could be turning into a full-fledged reversal of the primary trend.

Defensive assets such as US Treasury bonds and the Japanese yen are catching a bid. On the other hand, risk assets continue to struggle at overhead supply. Many are experiencing significant selling pressure at these logical levels.

With each passing day, the choppy environment that’s been in place since early February is becoming increasingly messy. 

This is a perfect environment for the US dollar to thrive as more and more investors are hiding out in safe-haven assets and waiting for the smoke to clear.

...

Bitcoin's now on the cusp of losing this critical 30k level we've been hammering the table on for the last month.

As it stands, there is nothing attractive on the long side right now:

We often preach to wait for your perfect pitch. That is, to trade well, not often, when the competitive edge is in your favor.

We took a few shots on the long side where the risk-versus-reward was in our favor. But the real winning trade has been cash.

If this isn't the best example of a "go fishing" market, I'm not sure what is...

Along with Bitcoin, here's our Top 5 Crypto index pushing against this critical 100 level.

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 their direction and make them a pretty...

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

Key Takeaway: Despite being dismissed, bad breadth getting worse not better. Defensive groups asserting leadership as risk off trades gain strength. Indexes catching down rather than breadth getting back in gear.

• Defensive sectors are perking up on an absolute and relative basis. Utilities, Consumer Staples and Real Estate were all positive last week (Staples even made a new high) and they occupy the top three spots in our short-term relative strength rankings. Staples and Utilities are still longer-term relative strength laggards.
• Real Estate remains the top-ranked sector (and is an industry group leader) across the size spectrum.

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."

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

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...

Traders woke up Monday morning to a little reminder that volatility happens.

It certainly wasn't a calamity, but it was a larger gap down opening than we've seen in a while, following an ugly close on Friday which certainly has put some traders on edge.

When these types of conditions arise, we often see implied volatility priced into options rise to meet these increasing levels of fear. And today is no exception. On days like today, I like to peruse the list of active ETFs and see if any elevated implied volatilities are offering up a good income trade candidate.

The one that tops my list also has a nice risk management level we can lean against.