From the desk of Steve Strazza @sstrazza

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.

Welcome back to our latest "Under The Hood" column where we'll cover all the action for the week ended July 23, 2021. This report is published bi-weekly and rotated on-and-off with our "Minor Leaguers" column.

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.

From the desk of Steve Strazza @Sstrazza

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.

From the desk of Steve Strazza @Sstrazza

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.

Mixed Signals From Modern Dow Theory

This week’s new highs for the major averages lacked confirmation from their peer indices once again. A topic we often discuss is "Modern Dow Theory." That is, instead of solely evaluating Transports and Industrials for a reading on the broader market, we should also consider the performance of Semiconductors as they’ve become the modern medium for economic transportation.

Despite the Dow Industrials ripping back to close this volatile week out at fresh highs, we’re still not seeing any confirmation from either of these critical indexes. And when we look at the Transportation Average, there is reason for concern as we’ve seen nothing but steady weakness since prices peaked in early May. As for semis, they continue to hold their own but remain trapped in a holding pattern beneath their April highs.

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

The markets are a mess and have been a mess for months now.

Risk assets are under pressure as the USD strengthens and overhead supply thwarts potential rallies.

Yet, we continue to find pockets of strength in both stocks and commodities.

We’ve said it time and time again during the past several months...the markets are a bifurcated, choppy mess! 

But during these challenging periods, identifying areas that are bucking the trend can prove valuable over intermediate- and longer-term timeframes.

Basically, the assets holding up the best or even breaking out while the broader market is trendless are likely to be your future leaders.

Let’s take a look at one area of the market doing just that!

Here’s a chart of the ASC Green Revolution Index: 

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

You’re probably sick of hearing this but it’s important! Even with the recent bout of volatility, new lows have been non-existent across most of the major averages in the US.

To be fair, many of our Intermarket relationships are still flashing red, suggesting continued headwinds for risk assets. 

Earlier this week we saw significant selling pressure in equity markets both domestically and abroad. Conditions are as ripe as they’ve been in more than a year for the bears. 

So, did we finally get that “fall day,” as our fellow Technician and friend Mike Hurley likes to call it?

The simple answer is no...

To us, the recent readings from our breadth indicators are no different from similar pullbacks over the past 18 months and not what a significant market top would look like.

But we always need to remember that like anything else, analyzing internals is a process. 

With this in mind, let’s check in on the 21-day lows for all S&P market cap sizes:

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

A revolution in energy is upon us.

Some like to call it the green revolution or the transition to renewable and alternative energy. How you want to label it isn’t what matters. 

All we care about is that the landscape for energy and how we use it is changing dramatically.

As the world quickly changes and the demand for energy expands, how we generate and utilize it, as well as the natural resources we rely upon to do so - will inevitably change, and adapt to this new environment.

Of course, we’ll continue to burn coal, crude oil, and natural gas for the foreseeable future. But there are other pockets of strength arising in areas that could very well be secular growth trends for decades into the future.

We’re always looking to identify these new arenas of growth. Here’s the way we see it...

With strong prospects for global growth and economic expansion in the cards, additional energy sources will need to be created so that supply can meet the growing demand being placed on an already antiquated and stressed infrastructure.

From the desk of Steve Strazza @sstrazza

I've personally been in the market for a new or used car for a few months now, and let's just say it hasn't been easy. The entire supply chain has been disrupted, and the market has been unable to keep up with demand.

I finally made the decision to stop my search until the supply crunch for semiconductors and other critical inputs alleviates. I could be waiting a while though, as this has already been going on for about a year. Thankfully, I live on an island that is only 8 square miles, so my bike or feet can take me wherever I need to go in the meantime.

According to a recent article from the Wall Street Journal:

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 '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.

From the desk of Steven Strazza @Sstrazza 

Check out our latest Mystery Chart!

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.

Let’s get right into it!

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.