In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Bears Take Control
Last week, we wrote about the importance of bulls defending the September highs in the S&P and other large cap averages. They didn’t. Instead, prices cut beneath these potential support levels with ease. Another area of importance we’ve been watching since last year is the 2021 lows in the Russell 2000. After being tested at least 6 times, sellers finally took control at this ~210 level in recent sessions. For now, none of the major averages in the US are above our tactical risk levels. We’ve seen a change in character during this correction as bears are becoming more aggressive. This is illustrated by momentum hitting extreme oversold conditions in all of the major indexes. We always want to respect our risk management levels, and currently they are telling us we can’t be long these indexes....
I wrote that headline to save you the trouble of turning on your TV or following your favorite fear mongerer online. You're welcome.
Unless you've been lost in the wilderness for the last two weeks (not a bad place to have been, btw), then you no doubt know the bulls are currently in trouble.
The fake-out breakout in the Russell 2000 $IWM has turned into a full-blown route, the S&P 500 is testing levels last seen at the end of September and early October, and $VIX has printed the highest levels of the year. There's not a lot to be optimistic about right now -- especially if you're holding a bunch of long positions that are at or near stop-out levels like I am.
I got stopped out of a bunch of positions last week, two today (a long call spread in $STX and a short strangle in $XLK), and a couple more might get exited tomorrow if things don't stabilize here.
Into this maelstrom, we've been dialing back putting on new positions. During last week's holiday-shortened trading week, we only put one new position on -- and that may have been one too many ;)
Since stocks peaked last February, the evidence has been pretty clear that these are the ones that paint the best picture of what's been going on over the past year:
Given the lack of demand observed on-chain combined with the growing macro uncertainty, the dip back to the low 40,000s appeared to be a low-conviction buy.
Since publication of those two notes, Bitcoin's subsequently lost a critical level of support and now hangs in a no man's land.
The same themes we've discussed over the last two weeks remain intact, so this report will serve as an interim update.
We retired our "Five Bull Market Barometers" in 2020 to make room for a new weekly post that's focused on the three most important charts for the week ahead.
This is that post, so let's jump into this week's edition.
I get to talk to traders and investors of all shapes and sizes every day of my life. This is something I like to do for fun, and it's also a great way to learn. But remember, I do this for a living. So not a day goes by where I'm not talking to market participants.
This has gone on for decades now. Everyone from the largest banks and hedge funds on the planet to recent grads first learning how to trade.
I have a lot of conversations with these investors. And one common theme I've heard over the past few months is just how difficult of an environment this currently is.
A lot of traders are getting chopped up in this mess of a market. And it's not anything new, it's been messy for quite some time.
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
The bull market for commodities is alive and well. They were the top-performing asset class last year, and they’re kicking off the new year with a lead once again.
The energy-heavy CRB Index is printing new seven-year highs, and our ASC Equal-Weight Commodity Index just resolved from a nine-month base to its highest level since 2013.
To take advantage of this area of leadership, we’ve been highlighting strength and outlining long ideas in a variety of commodity markets.
We know not everyone has access to the futures markets, and that’s OK, because there are plenty of opportunities to express a bullish thesis on commodities through the equity market.
To make this easier, we’ve put together a universe of stocks that offer investors exposure to a wide array of different commodities.
When it comes to portfolio management, asset allocation matters. For many the starting point of this discussion of dividing assets between stocks and bonds. This leads to the often talked about 60/40 portfolio: 60% stocks and 40% bonds. From my perspective that is an incomplete opportunity set and decisions based on such an opportunity set are going to leave investors feeling underwhelmed. Stocks (VTI) and bonds (AGG) are important components, but commodities (DBC) and cash (MINT) need to be on the table as well. Commodities were the top performing asset class last year. Amid equity market weakness this week, commodities are moving to new highs (assets in up-trends tend to do that). Cash has been mocked recently as a guaranteed way to lose ground relative to inflation. That might be a small price to pay for the flexibility it can provide in the face of volatility elsewhere. Three consecutive years of 20%+ returns for equities can make investors financially and emotionally over-invested in stocks. Maybe it’s time to get back to the basics. Stocks. Bonds. Commodities. Cash.
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.