Welcome to our latest RPP Report, where we publish return tables for various asset classes and categories, along with commentary on each.
Looking at the past helps put the future into context. In this post, we review the absolute and relative trends at play and preview some of the things we’re watching to profit in the weeks and months ahead.
We consider this our weekly state of the union address as we break down and reiterate both our tactical and structural outlook on various asset classes and discuss the most important themes and developments currently playing out in markets all around the world.
In our last report, we pounded the table on our position that markets are a total mess these days. Another theme we hit on was how many significant risk assets were trading at or below critical levels of overhead supply.
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.
Welcomeback to our latest "Under The Hood" column, where we'll cover all the action for the week ended August 20, 2021. This report is published bi-weekly and rotated on-and-off 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.
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.
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.
Key Levels Stay In Play
With more deterioration and choppy action taking place recently, bears are looking at yet another chance to take control. Many critical areas are near the lower end of their respective ranges and once again on breakdown watch.
The rationale is very simple. If bears can’t get it done with all these areas looking increasingly vulnerable right now, it will further enforce the lack of power we’ve seen from sellers in this environment.
If buyers can step in and defend these critical levels in small-caps, regional banks, and copper miners once again, it’s hard to imagine the world is coming to an end. In fact, it would prove incredibly constructive, and would be a new set of data points on the side of the bulls.
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
It’s been a routine hurricane season down here so far this year. Things have picked up lately, and we’ve had a few close calls over the past week.
But storms aren’t just brewing in the Atlantic...
It’s also beginning to look dicey in the commodities market, with lots of “close calls” these days.
Strong headwinds such as the rising dollar have hit some of the most important procyclical assets this week. Apparently, there’s some geopolitical stuff going on, too. Then again, when isn’t there?
Let’s discuss what we’re seeing and try to determine just how likely these winds could evolve into a major storm for commodities.
Energy, base metals, precious metals, and ags have either pulled back from recent highs or have broken critical levels of support.
Given that many areas have experienced near parabolic advances during the past year, a corrective phase would be a healthy and welcome development. It makes total sense for commodities to digest their monster gains at current levels. And remember, sideways is always an option.
What are the things we look for most when trying to identify leadership?
First, it’s all relative. When the market is selling indiscriminately, this becomes more challenging. You’re literally looking for the assets that get hit the least. It's not until the volatility subsides that we start looking for those that rebound out of it the strongest.
In today’s post, we’ll use the recent selloff and rebound in crypto as a case study for how we pick winners out of a loser's market.
Here are two of our favorite ways to find future outperformers:
Relative resilience during selling pressure.
Relative momentum and strength - both into the peak and off the lows.
With the former, we can use tools like relative strength - or, rather, the absence of weakness - in addition to chart characteristics like bullish divergences and momentum not hitting oversold.
With the latter, we’re again looking at relative strength. Who were the biggest gainers since the market bottomed? Who are the first to take out their AVWAP from the highs and/or other key levels?
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 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.
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.
Where the USD heads next will have wide-ranging implications across asset classes by either providing a tailwind for risk assets or a headwind in the case it resolves higher from its year-to-date range.
But, as the market continues to chop sideways, we want to direct our attention to one of the most important risk gauges in the currency market.
That’s the Aussie-Yen.
In this week’s post, let’s check in on the AUD/JPY to see what information we can glean regarding risk appetite and what it could mean for other markets.
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.
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.
Clues From Kiwis
We often look to the Australian dollar as a barometer for global growth, but we can take that analysis one step further by checking in on the arguably more cyclical currency, the New Zealand dollar. It often gives us a nice leading signal on AUD/USD. With a good portion of the New Zealand economy being driven by agriculture, tourism, and international trade, the NZD acts as a nice microcosm for the global economy.
At notable turning points in these trends, we tend to see the New Zealand dollar provide a heads up before it’s reflected in the Australian dollar. Over the last few weeks, while the AUD has been making fresh lows, the NZD has been remarkably resilient, carving out higher lows.
Will this divergence resolve with AUD soon catching higher? The action from cyclicals would certainly support that outcome.
