Welcomeback to our latest "Under The Hood" column, where we'll cover all the action for the week ended October 15, 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.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Intermarket Confirmation For Interest Rates
In recent weeks we have witnessed rates break above 1.40% and crude oil achieve its highest level since 2014. One of many missing pieces for the intermarket puzzle is the Copper/Gold ratio, which has been chopping sideways since risk assets peaked back in May. This week, we got an upward resolution, which suggests that base metals will continue to outperform precious metals. But it also suggests we’re entering an environment conducive to higher rates and higher prices for commodities, in general. This is a constructive pattern breakout that supports the global growth and reflation narratives.
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 big picture context 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.
Our International Hall Of Famers list is composed of the 50 largest US-listed international stocks, or ADRs.
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 big US names on our original Hall Of Famers list.
The beauty of these scans is really in their simplicity.
We take the 50 largest names each week and then apply technical filters in a way that the strongest stocks with the most momentum rise to the top.
Let’s dive in and take a look at what some of the largest stocks around the world are doing.
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
Copper was a critical piece missing from the intermarket puzzle heading into the fourth quarter.
Just last week, copper was testing year-to-date lows and looking vulnerable for a downside break. Meanwhile, energy futures and interest rates were rising, and cyclical and value stocks were getting back in gear.
The mixed signals were impossible to ignore. It’s not likely that the recent breakouts in crude oil and the US 10-year yield would hold in an environment where copper is breaking down.
Dr. Copper is a great leading economic indicator and critical to the global growth narrative. Let’s see what it’s saying.
Here are two ways we were looking at the copper chart:
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.
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
We’re beginning to see signs that risk-on behavior is re-entering the market.
Commodities are ripping in the face of a rising dollar.
Cyclical stocks are back in gear as the S&P 500 High Beta ETF $SPHB posts higher highs and higher lows relative to its low-volatility alternative $SPLV.
Meanwhile, classic risk-appetite barometer AUD/JPY sliced through a critical level of former support-turned-resistance earlier this week.
All of these point to an increasing risk-on environment.
But what does the bond market have to say about investor positioning toward risk?
Let’s look at a couple credit spreads that speak to investors’ willingness to incur risk.
Dividend Aristocrats are easily some of the most desirable investments on Wall Street. These are the names that have increased dividends for at least 25 years, providing steadily increasing income to long-term-minded shareholders.
As you can imagine, the companies making up this prestigious list are some of the most recognizable brands in the world. Coca-Cola, Walmart, and Johnson & Johnson are just a few of the household names making the cut.
Here at All Star Charts, we like to stay ahead of the curve. That’s why we’re turning our attention to the future aristocrats. In an effort to seek out the next generation of the cream-of-the-crop dividend plays, we’re curating a list of stocks that have raised their payouts every year for five to nine years.
We call them the Young Aristocrats, and the idea is that these are “stocks that pay you to make money.” Imagine if years of consistent dividend growth and high momentum & relative strength had a baby, leaving you with the best of the emerging dividend giants that are outperforming the averages.
Crude oil is at its highest level since 2014 after it took out resistance around 76.
Energy stocks just ripped off of support and are back above a key level of resistance, trading at highs not seen since early 2020.
Economically sensitive commodities and cyclical stocks, in general, remain very well bid.
Meanwhile, the mainstream media is hung up on narratives surrounding stagflation and the possibility of a global recession. But we’re just not seeing this at all when we look at price.
Risk assets are performing as well as they have all year. And, when we look outside the US, while there’s definitely been selling pressure around the world, the areas that stick out all seem to have something in common.
The energy-dependent countries are showing leadership.
This supports the recent price action from energy futures and stocks, many of which have been ripping to fresh highs.
In today’s post, we'll take a look at some international equities we can use to express a bullish thesis on higher oil prices -- and higher prices for risk assets more broadly.
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
All eyes have been on the US dollar as it presses to new 52-week highs.
But its recent rally hasn’t been accompanied by the usual risk-off behavior we’d expect. Actually, it’s been quite the opposite.
Bonds have been rolling over, commodities and cyclical stocks continue to march higher, and the yen can’t catch a bid.
To us, the evidence suggests the USD is momentarily decoupling from its classic intermarket relationships as it grinds higher in the face of all this.
If the US dollar is out of sync with the action in other asset classes, where can we look within the currencies market for a clear perspective of investors’ attitudes toward risk?
That’s right... the yen!
Let’s look at a couple of charts highlighting the Japanese yen’s weakness and discuss what it means for the current market environment.
First up is the classic risk-appetite barometer, the AUD/JPY cross:
Our Top 10 Charts 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.
Cyclicals Shine
In recent week’s we’ve witnessed a slew of former leadership groups -- mostly growth sectors, achieve our targets and begin to roll over. This might have been a more concerning development if we weren’t witnessing value and cyclical stocks pick up their slack so aggressively. Over the past couple of weeks, we’ve seen energy stocks rebound and make a swift move off support as well as financials rally back to fresh all-time highs. More recently, we’re now seeing industrials and materials dig in and rally off their year-to-date lows. Once again, the bears had some charts looking vulnerable, and failed to make their move. Now it appears that bulls are back in the driver seat and value stocks are poised to take on some leadership. This theme is illustrated well by the strength in our equal-weight custom cyclical index, below.
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.
