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.
Will Commodities Correct Through Price or Time?
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Nobody likes inflation.
The costs of day-to-day necessities rise. Long-forgotten and disliked sectors of the market start to outperform. And many of the cool tech names that were a must-own for every portfolio turn into a pile of hot garbage.
Now that everyone – even the Fed – agrees the current inflationary environment isn’t transitory, cries of a near-term top in inflation have emerged.
Yes, breakevens and inflation expectations have peaked and are beginning to roll over. Whether this will turn into a substantial downturn in the coming weeks and months is anyone’s guess.
Instead of playing the guessing game, we’re focused on commodities – the assets that benefit most from inflationary pressures.
Here’s what we’re seeing.
International Hall of Famers (05-27-2022)
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.
High-Yield Thrusts Higher
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
When it comes to the bond market, credit spreads are always top of mind. They provide critical information regarding the liquidity and stress of the largest markets in the world.
While most of us aren’t full-time bond traders, in many cases we turn to these assets to offset the risk associated with the equity side of our portfolios. That’s fine.
But when credit markets come under stress, it affects all asset classes, especially equities. We’re seeing this now.
Earlier in the month, we noted that these crucial spreads were widening to their highest level since late 2020 as the high-yield bond versus Treasury ratio $HYG/$IEI hit new 52-week lows.
It’s no coincidence that the major stock market averages fell to their lowest level in over a year as this was happening.
This is why we pay close attention to credit spreads. They give us information about the health of other risk assets.
Right now, with HYG catching higher on both absolute and relative terms, they’re telling us we could be in for a relief rally.
Let’s hone in on the recent action in high-yield debt and discuss what this means for stocks in the near term.
The Juxtaposition of WAGMI Culture
From the desk of Louis Sykes @haumicharts
“WAGMI,” we’ve all heard it.
Short for “we’re all going to make it,” it’s the mantra of crypto natives that paints an image of a better future.
As positive as this group expression may seem, it can also be viewed from the lens of a profound juxtaposition.
At its roots, WAGMI represents a deep contrast between the message of hope and the tragic reality of the lives of crypto natives.
[Video] Everybody Get Your Roll On | Options Trading w/ Sean & JC
For this week’s trade, we’re buying a $CVX October 180/200 Bull Call Spread for approximately $6.50 here. This means we’re long the 180 calls and short an equal amount of the 200 calls for a net debit.
Get the full details, risk management procedures and targets for this trade here:
2 to 100 Club (05-25-2022)
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.
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 point during their journey to becoming the market behemoths they are today.
When you look at the stocks in our table, you’ll notice we’re only focused on Technology and Growth industry groups such as Software, Semiconductors, Online Retail, Solar, etc.
Then, like any good technician, we filter the list down to those closest to new highs.
This allows the cream of these strong groups to rise to the top and helps streamline our mission to identify technical breakouts in the top-performing stocks.
The Failed Moves in Forex Land
From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
The US dollar is front and center as risk assets hang in the balance.
Earlier in the month, we placed the Australian and Canadian dollars on breakdown alert as they completed major topping patterns.
US dollar strength was expanding at the time, and the AUD and CAD were the last dominos to fall.
Or so it seemed.
What started as strong downside resolutions for these top commodity currencies quickly turned into potential failed breakdowns.
Now that the most resilient currencies are snapping back against King Dollar, it’s compromising the broad US dollar rally and could usher in a more favorable environment for risk assets.
Let’s discuss what it means for stocks and commodities if these failed breakdowns resolve higher.
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