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...

From the Desk of Steve Strazza @Sstrazza

Welcome to our latest Minor Leaguers report.

We've had some great trades come out of this small-cap-focused column since we launched it back in 2020 and started rotating it with our flagship bottom-up scan, Under the Hood.

For the first year or so, we focused only on Russell 2000 stocks with a market cap between $1 and $2B.

That was fun, but we wanted to branch out a bit and allow some new stocks to find their way onto our list.

We expanded our universe to include some mid-caps.

To make the cut for our Minor Leaguers list, a company must have a market cap between $1 and $4B.

And it doesn't have to be a Russell component — it can be any US-listed equity. With participation expanding around the globe, we want all those ADRs in our universe.

The same price and liquidity filters are applied. Then, as always, we sort by proximity to...

From the desk of Steve Strazza @Sstrazza

Our Top 10 Charts 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.

Stocks Fail at Key Level

A wide variety of risk assets have suffered significant corrective action dating back to last year. As such, we’ve gotten used to looking for logical areas of potential support, or levels where we could expect demand to enter the market.

No levels have provided a better guideline than the prior-cycle highs from 2018. And when it comes to the stock market, no index provides us with a more comprehensive view of the price action than the Value Line Geometric (VLG), shown below. The Value Line is composed of roughly 1,700 components and is designed to measure how the average - or more specifically, the median stock is performing.

As you can see, the median stock is currently rolling over after a successful retest of its 2018 highs. As long as the Value Line is below 595, stocks are likely to remain under pressure.

...

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 big picture context 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.

Macro Universe:

• This week, our macro universe was mostly negative, as 74% of our list closed lower with a median return of -1.48%.
• The Volatility Index $VIX was this week's winner, closing with a 24.08% gain.
• The biggest loser was the Nasdaq 100 $QQQ, with a weekly loss of -4.78%.
• There was a 5% drop in the percentage of assets on our list within 5% of their 52-week highs – currently at 6%.
• 11% of our macro list made fresh 4-week...

Key Takeaway:

• Powell’s tough talk justified by incoming inflation data.
• Slowing growth unlikely to derail Fed’s plans.
• Bull market re-birth struggling with labor pains.

Our bull market re-birth checklist took a step backward but a tough labor does not preclude a successful delivery. Without new complications from a macro perspective, we are willing to be patient and trust the thrust. At the same time, however, so far this year stocks have yet to show that they can sustain strength when yields and the dollar are rising. If the market is taking the Fed at its word, then higher bond yields are likely to be seen this year, in the US and around the world. Japanese yields are again approaching the 0.25% level that the Bank of Japan has targeted as a ceiling for yields. When that happened in Q2, the yen suffered.

Beyond financial market fluctuations, the tough line from the Fed could be tested by economic...

These days it seems like Energy stocks are acting strong regardless of whether there is strength or weakness in the broader markets.

I'm sure you've noticed.

The Long Energy trade remains in full force if the Sector Index $XLE is above those former highs from 2016-2018:

When the ducks are quackin'... feed them!

With volatility still up since Friday afternoon's stock market freakout, we're going to continue to take advantage of this volatility rise to add an additional, much-needed delta-neutral credit spread to our portfolio to diversify our risks somewhat.

So today I'll be positioning into an index ETF near the top of the implied volatility charts.

We've adjusted a position in the Paid-to-Play portfolio today:

Over the last two weeks, we've made the case for short-term caution and patience. This approach has proven timely, with Bitcoin correcting 20% over this period.

As it currently stands, Bitcoin lies on a shelf of support near its most recent pivot lows, around the 18,000, 19,000 neighborhood.

Bearish sentiment seems to be approaching extreme levels, with both Ethereum and Bitcoin quarterlies trading backward.

At the same time, the macro backdrop continues to be a risk-off picture.

The S&P 500 has lost a key level of support, while the US dollar, interest rates, and crude oil all look prime to begin a new leg higher.

Ernest S. Rady, the chairman and CEO of American Assets Trust $AAT, continues to appear on our list with his eighth Form 4 filing in the trailing month.

Rady reported his latest purchase on Friday, revealing another 25,000 shares, equivalent to $719,600.

There's one major catalyst that can be a wrecking ball in a potential bull market for stocks.

What's going to stop a year-end rally?

I think if there's anything that can stop it, it's further strength in the US Dollar.

This summer, the markets have only reiterated the negative correlation between stocks and the US Dollar.

A little bit of dollar weakness over the past 6 weeks, or lack of progress to be more accurate, sparked a rally in stocks and crypto assets.

But as Dollar strength came back recently, the pressure on stocks and crypto has returned.

So let's take a closer look.

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.