The Strazza Letter Articles

From the desk of Steve Strazza

April will go down as one of the most volatile months in stock market history.

At the lows a few weeks ago, the S&P 500 was in a 20% drawdown. Fast forward to today, and after finding support at the prior cycle highs, the index has already rallied 17% off the bottom.

They call it a fast market. There's no doubt about that.

But more importantly, it's starting to feel like a bull market again.

The major averages reclaimed their VWAPs from the all-time highs earlier this week, and now we're seeing bullish follow-through.

As long as these moves stick, it's looking more and more like a V-shaped recovery out here. And that means it's time to get more aggressive. 

Throughout this correction and subsequent...

With four of the Magnificent 7s reporting earnings the next two days, big tech is front and center.

I’m talking about the largest and most important companies in the world.

These mega cap growth stocks have grown so massive that they do most of the driving when it comes to the performance of the major averages.

The S&P 500 won’t be in a bull market if too many of the stocks in the trillion-dollar club are in downtrends. It’s just math.

Alternatively, the S&P is going to look great if Microsoft, Meta, and friends are in uptrends… even if market internals are weak beneath the surface. 

The bottom line is that when it comes to the US stock market, these are the heavyweights. You can’t have a bull market without them.

The Mag 7s currently make up over 30% of the S&P 500 and more than 40% of the Nasdaq 100.

The three largest - Apple, Microsoft, and Nvidia - are all tech stocks. So it stands to reason that...

US equities are officially the laggards of the world.

The S&P 500 is underperforming just about every stock market around the globe this year.

After four months of steady underperformance, a growing list of international indexes are making new 52-week highs relative to the US.

While these ratios might be stretched over the short-term, when you zoom out, they are taking the shape of primary trend reversals.

All this tells us is to expect more leadership from international stocks in the future. I think we should get used to a global market of stocks that is no longer dominated by the United States.

And this is great news. Participation broadening around the world simply means more investment opportunities for us.

So I’m all about international these days. The first watchlist and chartbook I’m looking at most mornings is our international ETF universe. 

The bulls are saying its global rotation, and the bears are saying it won’t work without US stocks.

Both takes make sense. But, they’re just takes. 

Here’s where we are…

Stock markets around the world experienced fierce selloffs back in March. 

Then in April, this bearish action was followed by some of the most historic rallies in recent history.

There was broad participation to the downside. And now we’re seeing the same in the opposite direction. We’re in the middle of a synchronized global rebound rally.

And every country, region, factor, sector, and industry group looks different. They all come with their own unique characteristics in terms of how much they sold off, how resilient they were, and now, how strong they are, measured by the bounce.

So, while some things obviously look better than others, and some groups still look...

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There is a real power to always staying open-minded.

We can’t be dogmatic with our approach or our positions on the market. It’s dangerous.

The data is always changing, and we need to be nimble and ready to change with it.

That brings me to the point I’ve been thinking about more than anything lately.

I think it is absolutely imperative that we remain open to the possibility of a v-bottom.

While there is plenty of data that suggests this is more likely to be a prolonged bottoming process… there is also a growing amount of evidence indicating we could rip right back to where we were.

I mean, it’s already happening overseas.

MSCI country indexes like Germany, the United Kingdom, Japan,...

I’ve been pounding the table on Brazil lately.

I can’t remember a time in my career when I thought about these stocks so much.

One of the first things I do every morning is check the BRL/USD pair and Bovespa.

That tells me all I need to know about how my Brazilian ADRs are trending. I’ve built positions in a number of them just recently.

Some are doing well, others like PBR and VALE, not so much.

But, here’s the thing. Investors are dumping their USD exposure and looking around the globe for new opportunities.

I think this has a lot less to do with trade war narratives and rumors, and a lot more to do with the fact that the US has dominated the investment world for a decade and a half.

America has been the only game in town for anyone looking to generate alpha. 

Of course, it couldn’t last forever. 

Stocks around the world are dirt cheap compared to the premium multiples found here.

For example, my two favorite Brazilian ADRs are trading at single-digit P/E multiples right now. 

...

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First of all, congrats to Goldman Sachs, now the largest component in the Dow Jones Industrial Average.

The last time a bank headlined the Dow was JP Morgan back in 1998.

That’s pretty cool, but that’s all it is. Just a fun fact.

I would say it’s a sign of the times that a tech stock didn’t fill the shoes of UNH, but the Dow is a bit funky in the sense that it is price-weighted instead of cap-weighted.

Speaking of Papa Dow, let’s talk about what’s next for the major averages following the latest beating for US equities.

All the large-cap indexes violated their VWAPs anchored from the April 7 pivot lows this morning. They all tested these levels and held just last week. 

That’s been the line in the sand for me as far as a retest of the lows is concerned. 

With every day the S&P, Nasdaq, and Dow are below these VWAPs, the higher the likelihood we’re headed back to the lows...

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We’re not even close to out of the woods yet.

Stocks just experienced their fiercest selloff in years, followed by one of the most significant bounces in market history.

The VIX remains elevated, indicating a roughly 2% daily swing in either direction.

There is little evidence that we’re leaving these volatile times behind. 

I think we’re in rally mode for now, but that doesn’t mean we’re suddenly in a risk-on environment again.

In fact, it’s been quite a risk-off rally since late last week.

I look at the relative performance of offensive and defensive groups to judge this kind of thing.

And here’s one of my favorite charts for it. This is Staples relative to the S&P 500:

And the pattern is what I like to call a bear market base...

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Markets are back in rally mode, and crypto always gives us a good hint as to where things are headed coming into the new week.

Bitcoin, Solana, and friends had a good Saturday session and even repaired some tactical trend damage.

We’ve been discussing various areas of relative strength on our special live streams since last week.

Crypto has been one of them, and the best tokens continue to hold and bounce off key levels.

In fact, I think the potential failed top setups in Ripple and Solana are as good as anything out there right now.

I’m long both for a swing trade and maybe more. We’ll see how things go.

Here is Solana $SOL:

After quickly breaching 120, which has acted as support a good ten times in the past year, SOL just jumped back above this key level and confirmed a bullish...

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My tactical outlook hasn’t changed just because we gave a little back today. 

Wednesday marked one of the largest single-session rallies in market history, and I think it has legs. 

We’re coming off extreme oversold levels with sentiment in washout territory. 

A monster bounce is just around the corner. 

So I’ve been digging through all of our scans over the last few days. Some new, some old. Looking for the best long opportunities. 

They are all different and cover a variety of universes. International stocks, US growth stocks, sector and industry ETFs, commodity stocks, etc. We have something for everything. 

The scans are all similar in a sense that they look to highlight some form of relative strength, momentum, or a combination of the two. 

I’m...

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Today marked the best day for the market since the financial crisis.

I barely remember it. I was still in college.

For some indexes, it was even the best day since the dot-com bust.

I definitely don’t remember that.

Some old souls will tell you someone like me doesn’t have the experience to navigate through an environment like this.

But I think I’m better equipped for it than they are.

I haven’t been broken by past bear cycles. I don’t get psyched out by them. I’m not jaded and I’m not afraid. I just follow the data. 

I’ve been the guy saying bearish things all year...

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In real bear markets, they come for everything. 

There are no survivors. It’s just how it goes. 

In the middle of last week, there were still pockets of strength. 

Things like Financials and Europe were holding up great. 

Then they both had their worst day in years. On Friday, they got absolutely slaughtered.

These massive failed breakouts in MSCI Germany and the SPDR Banks ETF really tell the story. 

The bears finally came for these leaders. 

And how about the defensive groups that have been showing relative strength all year?

Things like Healthcare, Staples, Real Estate, and Utilities. They seemed like a good place to hide. 

Then they got crushed last week like everything else. 

Low volatility stocks suffered their worst day and worst week since the pandemic lows....