From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Credit spreads are widening to their highest levels since late 2020.
If it feels like we just mentioned spreads and the falling HYG/IEI ratio, it’s because we did – and for good reason! They provide valuable insight into the overall health of the market.
We’ve been closely following the HYG/IEI ratio for months as it repeatedly tests the lower bounds of its range. It broke down to fresh lows in March, only to bounce higher with many risk assets.
Two months later, this crucial risk ratio is printing fresh 52-week lows again. The main difference is that the overall market environment has drastically changed since the last time we were at these levels.
Even the strongest stocks can’t catch a bid as investors...
As many of you know, something we've been working on internally is using various bottom-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, to 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.
Some of the best performers in recent decades – stocks like Priceline, Amazon, Netflix, Salesforce, and myriad others – would have been on this list at some...
Key Takeaway: The unwinding of a liquidity-fueled speculative bubble is weighing on investor sentiment, pushing many indicators into areas that signal excessive pessimism. The challenge in the current environment is the disconnect between how investors say they are feeling and what (if anything) they are doing about it. Popular sentiment surveys are so widely watched that they seem to be producing more noise than signal. This makes less widely followed surveys (like those from Consensus and NAAIM) more useful. ETFs overall have begun to experience outflows, but there is still plenty of evidence that investors are looking for ways to increase equity exposure.
Sentiment Report Chart of the Week: Buying Weakness Isn’t Evidence Of Fear
Echoing the message from the AAII asset allocation survey is a Investor Movement Index from TD Ameritrade that shows investors were “net buyers of equities in April.” That’s an unlikely way to express the fear and pessimism that is evident elsewhere. A...
But yeah, it certainly feels like it when seemingly every "relief rally" is met with fierce selling.
In our morning analyst meeting today, the team was lamenting the fact that it seems any levels of support that might seem obvious are proving to be nothing more than mirages. Levels are getting taken out everywhere.
This makes it increasingly frustrating to put on any kind of range-bound delta neutral plays. Yes, volatility is high and its very tempting to put Iron Condors or Strangles on here. But if we're looking for instruments that are likely to stay within a certain range, we just don't have any confidence right now in any levels on our screens.
The last few days have seen one of the largest unwinds and destruction of wealth in crypto history.
By historical standards, the collapse in the Terra ecosystem will go down as some of the most wide-reaching, systemic stress the asset class has endured.
We want to dedicate a good portion of this week's crypto letter to why UST failed, how it impacted other assets, and our outlook following this event.