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.
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.
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.
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 penny.
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.
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.
From Failed Moves Come Fast Moves
Markets have been unequivocally choppy. Breakouts are failing, new highs are dwindling, and it’s becoming more challenging to find trending opportunities. Last week, we discussed how Semiconductors failed to breakout, and asked whether its peer industries would follow suit. Well, we have our answer now… One of the strongest industry groups in the last two months, Internet, just printed a failed breakout at its February highs. Software looks frighteningly similar.
Digging into some of the components, Amazon, the largest weighting of the group, is in the process of retesting its September 2020 highs of 3550. And to compare the industry group to one of its peers, Semiconductors have also put in a failed breakout.
From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge
One of the main themes we discussed in the Q3 Playbook we published last week is the lack of any directional bias for equities on a relative basis.
We’ve been obnoxious about the trendless environment for equities on an absolute basis... and now we’re noticing a lot of the same play out in many of the relative trends we monitor.
When there is no edge on absolute terms, we can at least try and generate alpha by taking advantage of relative trends through pair trades.
But, right now there’s really nothing out there giving us an opportunity to do so. This is about as rough of an environment for money managers as you’ll find.
All we see is sideways, sloppy, range-bound action… Standard year-two stuff!
To illustrate what we mean, let's take a look at each large-cap sector SPDR relative to the S&P.
In fact, much of the sideways chop in commodities is taking place at logical levels of resistance. And aside from the dramatic sell-off in lumber, we see more upside resolutions than violations of critical support levels.
We recently pointed out that base metals managed to hang tough in the face of a significant correction in copper. And this week, tin is breaking out to new all-time highs.
From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge
It's a tale of two markets.
The weight of the evidence remains mixed across asset classes. We also continue to see more and more risk assets struggle at overhead supply. This is particularly true for equity and commodity markets.
From an intermarket perspective, most risk appetite ratios and risk-on relative trends are either moving lower or are rangebound.
Simply put, there's little in terms of directional edge for investors. The data remains split right down the middle -- and there are sound arguments for both the bull and bear case.
Although the information we're getting from the Bond Market is much more consistent these days. And what we're seeing is suggesting lower yields for longer.
From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge
Several weeks back, we discussed the fact that new lows were non-existent across just about all of the major averages in the US.
It’s pretty hard for a market of stocks to decline in any meaningful way without an expansion in downside participation. And we just aren't seeing any signs of this when looking through our breadth chartbooks and new low indicators - not even on shorter timeframes. This remains the case today.
So you would think this would be an excellent opportunity for the bears to take control… But, they just can't seem to get it done! Let's dive into some of our breadth and sentiment indicators and see what they're currently saying about this.
