From the Desk of Steve Strazza @Sstrazza

The bulls have moved back into the driver seat over the past few months, as a good deal of technical damage was repaired during the summer rally.

It appears that the weakest stocks have at least stopped falling as growth indexes have transitioned to more constructive, base-building action since late Q2. 

And, more recently, the strongest sectors during the current cycle have reclaimed key levels. 

We’re talking about materials rallying back into their old range and energy stocks resolving above a shelf of former highs. 

As both cyclical sectors are now back above our risk levels, we are looking for the strongest stocks to buy to express a bullish thesis on these groups.

When we think about the strongest stocks within materials, the coal industry and its recent resilience is top of mind.

We see no reason why the relative strength from these stocks shouldn’t continue, so let’s dive in and outline some of our favorite charts in the space.

Before we do that, here’s our equal-weight custom index, which includes the largest coal stocks listed on US exchanges:

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This is the video recording of our August 24, 2022, Inside Scoop Weekly Strategy Session.

The largest insider transaction on today's list is a Form 4 filing by H Partners Management, which reported an $11.6 million purchase in the theme park Six Flags $SIX.

The hedge fund has a total stake of 11.50% as well as a seat on the board.

Gas prices are going up?

Good.

That means our Energy stocks are probably doing well.

You see, we don't have any control over the cost of Energy. I don't work for the government. I'm not in the Energy business.

I don't know the first thing about drilling for Oil or Gas.

I'm just a random dude with a computer and some smart drinking buddies.

So for me, I have 2 choices:

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.

The stock making its way to today's post is part of the Capital Goods sector that has been performing well for a while now.

And guess what? We have a breakout! Do you know which stock we're talking about?

The largest insider splash on today’s list is a Form 4 filing by Gregory Bailey, an independent director at Biohaven Pharmaceutical $BHVN.

Bailey reported the purchase of approximately $5.6 million in his company’s stock.

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 stock is about to move in...

From the Desk of Steve Strazza @Sstrazza.

Welcome back to Under the Hood, where we'll cover all the action for the week ended August 19, 2022. This report is published bi-weekly and rotated with The Minor Leaguers.

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 institutional purchases, unusual options activity...

The largest insider buy on today's list is a Form 4 filing by Bill Gates, who revealed an additional purchase in Ecolab $ECL worth $19 million.

This is the third Form 4 filed by Gates in the last five days, as he continues to add to his position.

The market has set the stage.

From a seasonal perspective, the back half of the year should be strong.

When you consider the bearish sentiment readings we're coming off of this summer, a massive shift in sentiment into year end makes perfect sense.

We've seen the breadth improvement, as we get more and more stocks making new short-term highs, and now sector rotation has started to kick in.

SO WHAT'S THE CATALYST?

From the Desk of Steven Strazza @Sstrazza

Stocks have enjoyed a powerful rally off their summer lows, as bulls have been in control for about two months now.

A lot of technical damage has been repaired during this time. 

The outlook from sentiment and seasonality assure us the environment is ripe for a bottom. 

Breadth thrusts are stacking up and suggesting we could be in the early stages of a new bull market.

And risk appetite is gradually reentering the market, supporting the bullish price action.

Today, we'll review one of our favorite intermarket relationships, the discretionary versus staples ratio. 

By comparing these two consumer segments, we garner valuable insights about the current market environment and risk appetite in particular.

Here's the large-cap Consumer Discretionary $XLY versus Consumer Staples $XLP ratio:

As you can see, XLY/XLP just reclaimed its 2018 highs after collapsing beneath this key level earlier in the year. 

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