From the Desk of Ian Culley @IanCulley

Markets are bracing for tomorrow’s FOMC decision – including the dollar.

That’s right – we have more indecisive action on tap. Let’s call it the knee-jerk before the knee-jerk, with a little help from today’s May CPI print. 

Interest rates, the US Dollar Index $DXY, and gold have yet to make a decisive directional move.

To be fair, most markets are trading within their respective year-to-date ranges (except the S&P 500 and Nasdaq 100, of course).

But if we turn to emerging market currencies, we don’t see any sign of hesitation…

Check out our EM Commodity Currency Index (equally weighting the Mexican peso, the Brazilian real, the Chilean peso, and the South African rand) posting new 52-week highs after violating a long-term downtrend line at the beginning of the year:

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From the Desk of Steve Strazza @Sstrazza.

Welcome back to Under the Hood, where we'll cover all the action for the week ended June 9, 2023. This report is published bi-weekly and rotated with The Minor Leaguers.

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.

Under the Hood is a value-add for investors of all kinds, as we can express our views through a variety of different types of stocks.

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.

Click here for a behind-the-scenes look...

From the Desk of Steve Strazza @sstrazza and Alfonso Depablos @Alfcharts

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...

From the Desk of Ian Culley @IanCulley

Gold can’t do all the heavy lifting.

I believe a generational rally for gold has already begun. But my structural outlook hinges on the former 2011 peak.

Gold must hold above that former high, marking the end of the previous secular bull run. 

It’s held this level so far. 

But if gold has any chance of printing new all-time highs as it has versus most major global currencies, it needs a little help from its friends…

The new 52-week highs list keeps on getting longer.

You can add the S&P500 ETF $SPY to that list now.

Here's what that looks like:

From the Desk of Ian Culley @IanCulley

Commodities are caught in correction mode.

Copper has undercut former support. Crude oil is trading below its former cycle peak. And grain markets can’t catch a bid.

It’s not the most bullish behavior. But remember, price doesn’t travel in a straight line. 

On the bright side, most commodity contracts have stopped going down.

And the future will only become brighter for commodity and stock market bulls if buyers continue to bid up this next stock…

Check out Steel Dynamics $STLD, a $17B steel producer:

STLD has been on our radar for quite some time as it has respected key extension levels while grinding higher.

Notice the 98 level acted as resistance in early 2022. More recently, this level became support. This is the...

From the Desk of Ian Culley @IanCulley

International credit spreads are contracting.

Investors are running from imminent global collapse by reaching for emerging market bonds over risk-free US Treasuries. 

Wait, perhaps I heard it wrong. 

It could have been a US economic collapse. 

Or was it the Chinese yuan replacing the US dollar as the world’s reserve currency?

Honestly, I don't pay much attention to the doom and gloom. (But I do find it amusing.)  

I’m not the only one ignoring the bad vibes.

The markets are also disregarding the fear mongers…

Check out the Emerging Bond ETF (EMB) versus the US Treasuries ETF (IEF) ratio overlaid with the S&P 500 ETF (SPY):

These two lines follow a similar path – a path currently driven by burgeoning risk appetite.

Investors prefer riskier EM bonds over their safer US counterparts as the EMB/IEF ratio prints fresh highs. So it isn’t surprising those risk-on attitudes are spilling over into the S&P 500 $SPY.

It’s...

There was an inbound question to me this week regarding adjustments I make on short strangle trades.

For reference: A Short Strangle is a delta-neutral options position that consists of selling equal amounts of out-of-the-money naked puts and calls for a net credit. If everything goes according to plan, the underlying stays in a trading range and I can realize a profit buying back the short options for cheaper than I sold them.

Of course, it doesn’t always work out that simply. Many times, we need to play defense. Defense often involves rolling short options further away from the current price action. In practice, this means buying to close the existing short option and selling a further out-of-the-money option (in the same expiration series) for a combined net debit, which reduces my total net credit in the campaign.

The reader was asking me how I choose my “take...

If this is a bull market, then what comes next?

Breadth Expansion.

More upside participation.

Sector Rotation.

The list of the 52-week highs getting longer.

We've been betting that this is a bull market since last year. That has worked in our favor.

But what does the market need to do to reiterate that we are still, in fact, in a strong, healthy bull market?

More new highs.

Here's a look at the NYSE new 52-week highs list creeping higher in recent weeks.

From the Desk of Steve Strazza @Sstrazza

Welcome to The 2 to 100 Club.

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.

Some of the best performers in recent decades – stocks like Priceline, Amazon, Netflix, Salesforce, and myriad others – would have been on this list at some point during their...

As the bull market in stocks continues, the lifeblood to keep the ball rolling is sector rotation.

We're already seeing some of the big caps that have driven the first leg of this run start exhibiting signs of overexertion (check out $GOOG today).

It makes sense to us that stocks further down the cap scale are going to start asserting themselves and perhaps in some cases play "catch up" to their big brothers.

Today's trade is in a cyclical name in the Logistics space.

From the Desk of Ian Culley @IanCulley

Petrocurrencies and crude oil futures are diverging.

The currencies that benefit most from higher oil prices refuse to roll with crude’s steady decline. 

Perhaps it’s more about the US dollar than a handful of currencies tied to oil’s supply and demand dynamic.

But with OPEC up to its old tricks again – Saudi Arabia announced deeper production cuts last weekend – the question arises…

Is crude oil due for a bounce?

Check out the overlay chart of our petrocurrency index and crude oil futures:

Crude oil posted a key pivot high a week after our index bottomed in late September. Since then, these markets have taken separate paths.

Yes, correlations tend to come and go. It’s the natural rhythm of the markets. Yet past divergences have ultimately corrected over time. 

Our currency index led crude off the bottom in early 2016. It also peaked well before the 2018 and 2022 tops in...