The Regime change in the market is real.

It's much different today than it was in the first half of the year.

And that's perfectly normal. Anything else would actually be very unusual.

The strategies that worked in the first 6 months are not working well in this environment. But the strategies that did NOT work in the first half of the year are much better in the current market.

See: Regime Change

For example, high volatility strategies were mostly terrible in the first half of the year. That's because we were in a low volatility environment. It was our low vol strategies that worked great for us.

So since the market is behaving differently now, then so are we.

Volatility is a little more elevated, so that means we're getting paid to play. That wasn't the case earlier this year.

Freeport McMoRan, for example, has some juicy premiums and is trading in a massive range.

Perfect:

These are the registration details for our LIVE Mid-month Conference Call for Premium Members of All Star Charts.

Our Live Call will be held on Wednesday August 23rd @ 6PM ET. As always, if you cannot make the call live, the video and slides will be archived and published here along with every other live call since 2015.

Here are the details for Wednesday night:

From the Desk of Ian Culley @IanCulley

Credit spreads are the canaries in the financial market coal mine.

They’ll peep at the first sign markets face serious risks.

With stocks entering a corrective phase, it makes sense to seek information from the biggest exchange in the world.

The bond market.

Credit spreads remain tight despite increased selling across US equities.

That’s the opposite of what I’d expect during a severe selloff.

What does that tell us?

Check out the overlay chart of the Russell 2000 ETF $IWM with the high-yield credit spread ratio, $HYG/$IEI:

A reader recently reached out to me, asking about a trade I put on.

I’m paraphrasing, but the conversation went something like this:

Reader: “The implied volatility of the MSTR June 450 calls is 64.7%. That is far from cheap, no?”

Me: “The absolute number of implied volatility is meaningless to me. I’m paying attention to its relative value. I want to know where IV is now compared to where it’s been.”

Reader: “Wow. That amazes me. I always thought the implied volatility was an indication of how expensive an option was. Could you write an educational piece on this sometime please?”

Dear reader, your wish is my command.

Here’s the thing about options premiums (and implied volatility, or “IV,” which measures premiums) – they mean revert.

When IV spikes, it’s only a matter of time before it comes back down. And when IV is low, it’s likely that any sudden premium moves will be to the upside, not the downside.

Why is this true?

We’re having loads of fun with What the FICC?

Spencer and I talk about high-level intermarket trends, whatever markets catch our attention, and things that fly under the average investor’s radar.

Bill Baruch, the founder and president of Blue Line Futures, will join us tomorrow to share his insights on trends and markets.

I’m a big fan of Bill’s and the entire team at Blue Line – a consistent source of clarity. And I know Spencer’s dying to discuss yields…

It’s going to be a good one! Be sure to tune in tomorrow at 11:30 a.m. ET.

If you missed yesterday’s show, here’s a quick recap…

From the Desk of Steve Strazza @Sstrazza and Alfonso Depablos @AlfCharts

We love our bottoms-up scans here at All Star Charts. We tend to get really creative when making new universes as we want to be sure they will deliver us the best opportunities the market has to offer.

However, when it comes to our latest project, it couldn’t be any simpler!

With the goal of finding more bullish setups, we have decided to expand one of our favorite scans and broaden our regular coverage of the largest US stocks.

Welcome to The Junior Hall of Famers.

This scan is composed of the next 150 largest stocks by market cap, those that come after the top 150 and are thus covered by the Hall of Famers universe. Many of these names will someday graduate and join our original Hall Of Famers list. The idea here is to catch these big trends as early on as possible.

There is no need to overcomplicate things. Market cap is a quality filter at the end of the day. It only grows if price is rising. That’s good enough for us.

From the Desk of Steve Strazza @Sstrazza

Welcome to The 2 to 100 Club.

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.

For me, this is what we want to watch.

Are you wondering whether this correction in the stock market can turn into something much more severe?

I certainly am.

As thrilled as we are to see some of these Tech and Growth stocks get hammered, the question is whether this aggressive selling will spill into other more value-oriented areas.

There are 3 main charts that we have on our radar.

The first one is in credit. If we're entering into a new bear market, or an aggressive period of high volatility, you are likely to see that stress in the bond market. If Treasuries begin to outperform High yield, it's evidence of that stress.

The next one is in High Beta vs Low Volatility stocks. This ratio tends to move very closely with the averages. If you start to see a bid in Low Volatility stocks relative to High Beta, then this correction is likely to be more severe.

And finally the Consumer Discretionary vs Staples. Similar to the High Beta / Low Vol ratio, this tends to signal rotation into more defensive areas of the market.

Here's what that looks like:

As is common when the stock market is moving lower, we're seeing rising options premiums. We aren't seeing any big volatility spikes yet, and $VIX is still relatively muted, but the recent rise coupled with setups that appear to be ripe for some sideways action in the coming weeks and months has me on the hunt for delta-neutral premium selling opportunities.

Today's trade is in a metals and materials stock that appears to be stuck in a year-long range that we're betting on continuing.

Check out this chart of Freeport McMoran $FCX for a visual of what we're seeing:

From the Desk of Ian Culley @IanCulley

When it rains, it pours.

Markets chop sideways most of the time. This has been the reality for forex markets for much of the year.

But that’s starting to change as numerous US dollar pairs reach new 10-month highs. The dollar is taking down crucial levels while the US Dollar Index $DXY retests a year-to-date downtrend line and key former highs.

The peculiar coincidence sets up some potentially critical resolutions for these USD pairs.

If they fail, the dollar rally is likely over. 

If they hold and additional USD breakouts materialize, selling pressure will intensify for many risk assets.

As of today, quite a few forex pairs are on the verge of supporting a sustained US dollar rally…

Let’s start with the second largest component of the DXY (13.6%), the US dollar-Japanese yen:

Is now the time to get long equities?

If you kept up with the headlines and what the sell side analysts have to say, you'd think it would be.

Fortunately we try to stay ahead of the curve around here.

Yesterday we discussed the recent sentiment shift among permabears, wall street analysts, hedge funds and financial media.

You can read that again here.

To add to that sentiment shift, here is the our internal sentiment composite which includes data from Individual Investors, Advisories, Active Investment Managers, Volatility and the Options Market.

As you can see last year saw some of the most pessimistic levels in history, giving us one of the greatest buying opportunities we've ever seen.

Today, Sentiment is at the opposite extreme:

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.