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.
Using Caterpillar And Copper As A Risk Barometer
On the topic of high-beta names, here’s a behemoth from the Industrial sector. We think of Caterpillar as an index in and of itself - a barometer for global economic growth, reflation, cyclicality, etc. It’s all reflected in CATs stock price, as it is highly correlated with risk assets such as Copper and Emerging Markets. The stock recently made its first lower low in over a year, suggesting we continue to approach these offensive areas with caution. We’ll be watching to see if Copper, and others... even risk-on forex pairs like the Aussie/Yen, will continue to follow Caterpillar’s path. How much structural damage is endured before we get a tradeable bottom in these assets will provide us valuable insight regarding the future market environment for risk-taking.
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Whether you trade commodities or not, it’s been impossible to ignore the recent sell-off in Lumber, as prices have collapsed almost 30% in just the last month.
Well, let’s just say we got a lot more than that! Sometimes markets correct or consolidate through time, and sometimes they correct through price.
And Lumber is most definitely correcting through price!
But Lumber is not the only procyclical commodity to enter a corrective phase. More recently, DR. Copper has begun to digest its recent gains through price as well.
These corrections have already done some damage to the primary uptrends at play as both of these economically sensitive commodities have recently violated critical support levels.
It's now a year later, and we're still seeing them... In fact, the S&P 500 recently registered its highest percentage of new 52-week highs in history - absolutely crushing the historic reading we saw in Q4 of last year.
So, why is this important?
These extreme readings are as bullish as it gets and are a very common characteristic of the early innings of a fresh bull market. It's as simple as that, right?
Welcome to our latest RPP Report, where we publish return tables for a variety of different 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.
And at present, markets are a total mess and full of mixed messages as most major stock market indexes continue to churn sideways in consolidation patterns, while many risk-on commodities are in corrective phases.
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?
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.
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
The US Dollar trading at key levels against a significant amount of Developed and Emerging Market currencies is the major theme in Currency Markets right now.
The GBP/USD is challenging an area of resistance that acted as support for over two decades but has been a barrier for prices since the Brexit vote almost 5 years ago.
The USD/CHF is on the verge of completing a massive 9-year top.
The USD/ZAR just violated critical support at a decade-long trend line.
And USD/CAD is currently attempting to complete a 5-year double top... with a pattern that looks strikingly similar to that of the DXY Index itself.
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.
We use a variety of sources to generate the list of most popular names. There are so many new data sources available that all we need to do is organize and curate them in a way that shows us exactly what we want: A list of stocks that are seeing an unusual increase in investor interest.
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.
Outlook For Yields Turns Lower
Despite a historic CPI print, yields are unanimously pointing lower, including other vital metrics from different asset classes. Both the Copper/Gold and Regional Bank/REIT ratios have been pointing down for some time, and the all-important High Yield/Treasury Bond spread is shifting to a more bearish tilt for risk assets. It’s pretty clear right now that either the Bond market disagrees that long-term inflation is here to stick around or disagrees with the stock and commodity market on how it’ll affect.
This is where a lot of our mixed signals are coming from right now. Risk assets and commodities, particularly Crude Oil, are pointing to further upside for risk, while the Bond market is beginning to raise some alarm bells. And if we know anything about the Bond market, we consider it smart money. Watch this space...
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Softs are an area of the commodity space that hasn’t received much attention over the past several months, and for good reason.
As the rest of the commodities complex has been on fire, the action from this group has been muted as they’ve underperformed their peers significantly since last year.
Besides Sugar reaching our initial objective last month and Coffee breaking out of a 4-year bottom, Softs have been a real snooze fest.
Cotton continues to chop within a broad range. Cocoa is well below overhead supply. And OJ grinds sideways as it builds a 3-year base.
But it looks like Orange Juice futures are poised to break free to the upside.
Let’s take a closer look at this favorable risk/reward opportunity in OJ and lay out a potential trade setup to get long this base breakout, if and when it comes...
