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. 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

Welcome to our latest “Minor Leaguers” report.

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 bottom-up scan, “Under The Hood.”

We recently decided to expand our universe to include some mid-caps…

For about a year now, we’ve focused only on Russell 2000 stocks with a market cap between $1 and $2B. That was fun, but it’s time we branch out a bit and allow some new stocks to find their way onto our list.

The way we’re doing this is simple…

It's still not all that pretty out there underneath the surface.

But new all-time highs in the S&P500 is probably not something we should ignore.

History has taught us that when we see that, there are usually more new all-time highs coming shortly after that. And then after that again....

On this episode of Pardon The Price Action, we talk about whether these are all retests or failed breakouts.

That's the big question.

Full video below or Listen to the podcast version.

With Oil testing 76, Financials and Industrials retesting former highs, small-caps and even Bitcoin near critical levels, we want to know if this is just a pause, or the beginning of the end.

All this and so much more on the latest episode Pardon the Price Action!

It's Saturday Morning Chartoons time. 

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.

You can find the whole list of trades here.

Below you'll find the full PDF of this week's charts:

From the desk of Steve Strazza @Sstrazza

Our Hall of Famers list is composed of the 100 largest US-based stocks.

These stocks range from the mega-cap growth behemoths like Apple and Microsoft – with market caps in excess of $2T – to some of the new-age large-cap disruptors such as Moderna, Square, and Snap.

It has all the big names and more.

It doesn’t include ADRs or any stock not domiciled in the US. But don’t worry; we developed a separate universe for that which you can check out here.

The Hall of Famers is simple.

We take our list of 100 names and then apply our technical filters so the strongest stocks with the most momentum rise to the top.

Let’s dive right in and check out what these big boys are up to.

Here’s this week’s list:

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley

We’ve pounded the table on the weakness in energy these past few days, so why stop now? When we find ourselves hammering the same topic time and again, there’s usually a very good reason.

As far as energy goes, there’s been a lot of damage done to the space this week.

Breadth fell off a cliff and was not supporting the new highs for energy stocks.

The relative trends have gotten clobbered, as energy has been among the worst-performing sectors over the near term.

And, just today, we’re seeing failed breakouts in energy sector ETFs across the board.

Since we’ve already written about these themes, let’s dive in and see what energy futures themselves have to say about the situation.

Are futures resilient despite these bearish developments? 

Or are there cautionary signs in the commodities market that are confirming the weakness in the stock market?

Let’s find out.

First up is crude oil:

From the desk of Steve Strazza @Sstrazza

Energy has been by far the best-performing sector over the trailing 12-month period.

In October, we witnessed a handful of energy stocks and industry ETFs break higher from bases and reclaim their summer highs.

Without a doubt, these are bullish developments for the space. 

But over the trailing month, energy has lost that leadership position and has actually been the worst-performing sector in the market. 

Today, we’re seeing a lot of the upside resolutions from last month undercut their former highs and turn into failed breakouts.

So, where do we go from here?

When we look at the relative trends in the energy sector, we get a much different picture than what we’re seeing on absolute terms. Most of them never resolved higher like their absolute trends and simply remain messy, with prices stalling at the upper bounds of their basing patterns.

If we’re going to see sustained outperformance from energy stocks, we need to see them resolve higher relative to the broader market. 

From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge

Over the past few weeks we’ve seen a handful of major indexes, like small and mid-caps, resolve higher and kick off a fresh up leg. But breadth has really cooled off since then, as participation has been declining despite the major averages rallying.

This week, we’re finally seeing that weakness show up at the index level -- particularly from SMIDs and cyclicals.

When we were reviewing our breadth charts, we noticed the deterioration in energy sector internals has been particularly bad. Not only is breadth not confirming the new highs from energy stocks… but there are actually some pretty ugly divergences in our new high indicators. 

Energy stocks are currently vulnerable, sitting just above their breakout level at former resistance. Considering the lack of support from internals, this group is on failed breakout watch.

Let’s take a look under the hood and discuss what we’re seeing.

Energy has been coiling in a continuation pattern above its year-to-date highs around 56 for over a month now. You can see this in the upper pane of this chart:

From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley

On Tuesday night we held our November Monthly Conference Call, which Premium Members can access and re-watch here.

In this post, we’ll summarize it by highlighting five of the most important charts and/or themes we covered, along with commentary on each.

Let’s get right into it!

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

TIPS versus Treasuries is one of the most important charts we’re watching right now, as it's hitting its highest level since early 2013. Relative strength from TIPS hints that investors are positioning themselves for a sustained surge in inflation.

This makes sense given both the five- and 10-year breakeven inflation rates have reached their highest levels in more than a decade. 

As investors react to signs of impending inflation, many cyclical stocks that benefit from higher rates are catching a bid. A great example of this is the Metals and Mining ETF $XME.

Let's take a look!

Below is a chart of XME overlaid with the TIPS versus Treasuries ratio and correlation study in the lower pane:

From the desk of Willie Delwiche.