From the desk of Willie Delwiche.

Key Takeaway:

• Stocks and bonds weighing on portfolios.
• Federal Reserve faces a credibility test of its own making.
• Turmoil usually ends after something gets broken - this time it may be investor resolve.

It’s clear now that the late-May bounce and early-June consolidation was more an absence of selling (in both stocks and bonds) than a meaningful increase in appetite for these assets. Now that selling pressure has re-emerged, stoked by persistent inflation, stocks have moved to new lows for the year and bond yields have surpassed their 2018 highs. For many investors, particularly those in 60-40 (or similar) stock/bond allocations, this is producing a market environment that is virtually without precedent in the past quarter century. Comparisons to the Financial Crisis come to mind. Perhaps that is...

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 June 10, 2022. This report is published bi-weekly and rotated 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.

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.

Watch this video for a behind-the-scenes look at our process.

Whether we’re measuring increasing interest based on large...

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.

Yen Leads Rates Higher

The Japanese yen has been front and center, and for good reason. It won’t stop falling. Notice the strong relationship between the USD/JPY cross and the US 10-year yield illustrated in the overlay chart with a 26-day correlation study in the lower pane. Interestingly, this strong positive correlation all centers around the Bank of Japan’s effort to put a cap on interest rates. They achieve this by going into the open market to purchase Japanese Government bonds. As such, the BOJ has to reduce US Treasury purchases, and this is putting upward pressure on the US 10-year yield. As long as this remains their strategy, the strong relationship between these markets should hold.

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:

• Our macro universe continued lower this week as 83% of our list closed lower with a median return of -3.91%.
• This week, the Volatility Index $VIX was the winner, closing with an 11.94% gain.
• The biggest loser was Lumber $LB, with a weekly loss of -10.81%.
• There was a 4% drop in the percentage of assets on our list within 5% of their 52-week highs – currently at 11%.
• 11% of our macro list made fresh 4-week highs....

Stocks are heavy out there. Everything is getting sold (except Coca-Cola $KO).

But even in selling down, strong stocks and future winners can and will begin to reveal themselves, first through relative strength.

Today's idea, while down on the day like everything else, is a stock that has been quietly gathering relative strength for some time now. And if we think the selling pressure in the broader markets is close to exhausting itself, this International stock may be one of the next leaders when markets calm down.

 

In last week's letter, Keeping Out of the Waters, we continued to argue the case for neutrality in the near term.

There's been so little to discuss in the way of actionable trade ideas in this messy, choppy environment. Assessing the price action over the weekend, it seems this patient approach has paid off.

We were stopped out of our starter Bitcoin $BTC long and a few positions in crypto-associated equities at a small loss. As Bitcoin hit our stop in the upper 20,000s, we sold any exposure we had and moved straight back into cash.

Following this volatility, we are not interested in calling a bottom.

Patience has been and continues to be the strategy in this tape.

 

 

 

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

Today’s Hot List is a short one.

The CEOs of Nerdy $NRDY and SoFi Technologies $SOFI both filed Form 4s reporting small purchases of their own stock.

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:

...

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 Steven Strazza @Sstrazza and Ian Culley @Ianculley

Don’t fight trends. It never ends well.

Learning to go with the flow often comes with age and experience. Lucky for us, we have plenty of both at All Star Charts as the current cycle isn’t our first rodeo.

We’ve been pounding the table on the energy trade, gracefully accepting all of this inflation and the outrageous prices at the pump.

What can we do about it? 

We can own the strongest commodities that continue to benefit from this inflationary environment. It’s really that simple. 

Let’s take a look at one of them now.

Here’s a zoomed-out chart of live cattle futures:

Last August, we covered live cattle, anticipating a breakout from a multi-year consolidation. Price chopped around the upper bounds of its range for a few months but ultimately resolved higher, completing a large basing pattern.

...

From the desk of Willie Delwiche.

The March 2021 CPI data (released in April of last year) showed the largest monthly increase in the prices in over a decade. The 2.7% yearly change in the CPI at that point was dismissed as being due to base effects written off as transitory. Some were even talking about how an uptick in inflation would be welcome. It has proven to be neither unduly influenced by base effects nor transitory. As inflation has continued to move higher and the Fed has belatedly attempted to bring it under control, neither stocks or bonds have responded favorably. The S&P 500 is down 3% since April 2021 and the aggregate bond index is down 8.5%. Commodities, however, have flourished, rising more than 77% in that time period. 

The details of today’s inflation report suggest price pressures remain prevalent. The Fed will likely have to intensify its inflation-fighting efforts. Whether from the Fed, the current Administration or the private sector, folks who were dismissive of inflation in Spring 2021 should have their current perspectives taken with a grain of salt. 

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