From the Desk of Ian Culley @IanCulley

Did we just experience the largest bear market rally in history? 

Or did the June low mark the bottom for stocks?

Instead of getting caught up in the "bull vs. bear" debate or, even worse, attempting to pick the bottom, let’s focus on a singular fact…

US dollar headwinds persist. And whether it was the bottom or not, as long as this is the case, stocks are likely to remain under pressure.

From the Desk of Steve Strazza @Sstrazza.

Welcome back to Under the Hood, where we'll cover all the action for the week ended September 2, 2022. This report is published bi-weekly and rotated with our Minor Leaguers report.

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.

From the Desk of Steve Strazza @sstrazza

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.

Stocks had a ripper of the June lows, and now many markets have digested those gains.

How they correct, and how they digest gains, gives us a lot of information.

To help put things in perspective, the S&P500 has retraced exactly 61.8% of the entire rally of the lows.

This is a perfectly normal correction:

Remember when the stock market peaked in February 2021?

That's when the New highs list peaked. That's when the Nasdaq Advance-Decline line peaked. That's when Chinese Internet Peaked. That's when Biotech peaked. That's when all the ARKK funds peaked.

February 2021 is when everyone had a SPAC.

Remember SPACs?

This group of "Special Purpose Acquisition Companies" was a poster-child for the excess environment of Q1 2021.

These SPACs were the biggest pieces of hot garbage on the market. And everyone wanted them.

And then the market peaked and their prices came tumbling down.

Now here we are, 18-months later. And they've just decided to delist the SPAC ETF $SPAK.

A sign of the times?

I was back on The Compound & Friends podcast this week with Josh and Michael.

They're both old friends of mine, so it's just us arguing and yelling at each other for an hour.

Always fun.

Hope you enjoy!

This is the weekly post that aggregates all the charts we put together throughout the week and organizes them all into one, easy to flip through deck.

From the Desk of Ian Culley @IanCulley

We’ve been loud about energy lately. And how can we not be?

Energy stocks were the most resilient during the H1 selloff and are by far the best-performing sector off the 2020 lows. Every afternoon, energy quietly leads the pack into the close, whether the market is green or red on the day.

But the recent rally in stocks has started to fizzle. And even energy is beginning to feel the downside pressure.

While everyone scrambles to label the recent rally, gearing up for the next leg higher, or preparing for the world's end, we want to focus on the leaders – energy!

If this leadership group starts to fall, it could be an early warning sign of broad selling on the horizon.

And, with Labor Day upon us, it just so happens the energy sector ETF $XLE is retesting a critical shelf of former highs.

Here’s a chart of XLE:

From the desk of Steve Strazza @Sstrazza

Our International Hall of Famers list is composed of the 100 largest US-listed international stocks, or ADRs.

We’ve also sprinkled in some of the largest ADRs from countries that did not make the market cap cut. 

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 largest US stocks on our original Hall of Famers list.

The beauty of these scans is really in their simplicity.

We take the largest names each week and then apply technical filters in a way that the strongest stocks with the most momentum rise to the top.

Based on the market environment, we can also flip the scan on its head and filter for weakness.

Let’s dive in and take a look at some of the most important stocks from around the world.

Here’s this week’s list:

From the Desk of Ian Culley @Ianculley

Heading into Q3, we wanted to play a mean-reversion bounce in US treasury bonds. A long list of reasons supported this position:

• US Treasuries experienced their worst H1 in history (or close to it).
• Bonds were finding support at their previous-cycle lows from 2018.
• Commodities and inflation expectations peaked earlier in the spring.
• Assets that benefit from rising rates (financials) were making fresh lows.
• Global yields were pulling back.

And, quite frankly, our risk was well-defined. We can’t ask for much more. For us, the greater risk was not taking a swing at this trade in the event bonds ripped higher…

Two months later, bonds across the curve are taking out their 2018 lows. The market has proven our mean-reversion thesis wrong. But we can live that because we manage risk responsibly.

It’s the most important part of playing this game.

Easily, the second-most important is to remain flexible.

From the Desk of Steve Strazza @Sstrazza 

Regardless of the time frame, we continue to see leadership and relative strength from energy stocks.

Outside of utilities, it is the only sector flaunting positive returns on a year-to-date basis.

Even over the past several weeks, with the broader market coming under increasing pressure, energy stands out as the most resilient group.

When we look at the structural trend for energy stocks, this makes a lot more sense.

While most sectors and indexes are facing downward sloping or sideways 200-day moving averages, indicating that the path of least resistance is lower, energy stocks remain in a strong primary uptrend.

While the corrective action of the past few days has not left energy unscathed, the Energy Sector SPDR $XLE remains above our risk level of 79.

As long as this is the case, the bias is higher for energy, and we want to be looking for the strongest stocks to buy as a way to express our bullish thesis.

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.