From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
The rally in some commodities has been near-vertical this year.
And we’re seeing this strength across the entire complex -- from energy contracts like crude oil to base metals such as tin and even grain markets like wheat.
While these kinds of moves are bullish over longer time frames, when things get too hot (like they have), it’s often not sustainable on a tactical basis.
This is the situation right now for a lot of commodities. We think a period of well-deserved digestion is underway for the broader asset class.
But this doesn’t mean there won’t be fresh up-legs taking place in some individual contracts.
As this new secular bull market matures, pockets of strength will rotate across the space. Our only job is to find the emerging leadership.
Our International Hall of Famers list is composed of the 100 largest US-listed international stocks, or ADRs.
We’ve also sprinkled in some of the largest ADRs from countries that did not make the market-cap cut.
These stocks range from some well-known mega-cap multinationals such as Toyota Motor and Royal Dutch Shell to some large-cap global disruptors such as Sea Ltd and Shopify.
It’s got all the big names and more--but only those that are based outside the US. You can find all the largest US stocks on our original Hall of Famers list.
The beauty of these scans is really in their simplicity.
We take the largest names each week and then apply technical filters in a way that the strongest stocks with the most momentum rise to the top.
Based on the market environment, we can also flip the scan on its head and filter for weakness.
Let’s dive in and take a look at some of the most important stocks from around the world.
The largest insider transaction on today's list is a Form 4 filing by Simon Groom, who reported a $49 million purchase in the broadcasting company iHeartMedia $IHRT.
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.
While the dollar pressed to new highs against the yen, the pound, and the euro, it struggled to gain ground against commodity-centric and emerging market currencies.
The lack of broad strength had us questioning the validity of the recent rally in the US Dollar Index $DXY.
That’s changed recently.
Today, the dollar index is catching to new highs against a backdrop of broadening strength, not weakness. Now that we’re seeing dollar internals flip and start to confirm these new highs from the index, this is not a trend we want to fight.
The market has become increasingly volatile as selling pressure spreads to the strongest stocks.
As bullish opportunities become more scarce, we’ve had to become more selective in terms of our long exposure.
This is because we’re trend followers. We want to be involved in uptrends, and as more and more uptrends come under pressure, we have fewer options. It’s as simple as that.
But when it comes to corporate insiders and activists, they actually become more active when stocks are under pressure. They love buying weakness.
So while there are fewer opportunities for trend followers like us, there is a growing list of opportunities for bargain-hunters like them.
As such, insiders have been very active in recent weeks as stocks continue to slide. But they don’t only buy downtrends. There has been some activity in names showing impressive relative strength as well.
Let’s talk about a handful of leading stocks that insiders have shown interest in recently.
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.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Selling Spreads
Speaking of leaders, even the strongest stocks have come under pressure in recent sessions. There was no good place to hide toward the end of last week as stocks were being sold indiscriminately. We saw the start of this on Thursday as the market leaders came under serious pressure. Friday, that volatility accelerated as investors shrugged off record earnings numbers and took profits across the board.
Over the past few months, we’ve seen money rotate into defensive groups or growth stocks in sessions where cyclical stocks have sold off. That wasn’t the case last week as the market was a sea of red.
