From the desk of Willie Delwiche.

The Investors Intelligence Bull-Bear Spread was unchanged last week, remaining just beneath the level that in the past has signaled  full embrace of equities and the opportunity for sustained stock market strength.    

Why It Matters: Excessive optimism can signal elevated risks for equities, but since 2015, virtually all of the net gains for the S&P 500 have come when II bulls have exceeded bears by 18% or more. For the past two weeks the spread has been stuck at 16.9%. The absence of bulls and a sustained re-building in optimism over the past year have been a headwind for stocks. The shift from excessive pessimism to elevated optimism is typically when stocks do their best, but this cycle investors have been slow to embrace rally attempts. With stocks strong out of the gate to start 2023, the lack of optimism is notable. If 2023 is not going to follow the path of 2022, investor attitudes about stocks will need to change. 

In this week’s Sentiment Report we take a closer look at...

From the Desk of Steve Strazza @Sstrazza

When investing in the stock market, we always want to approach it as "a market of stocks."

Regardless of the environment, there are always stocks showing leadership and trending higher.

We may have to look harder to identify them depending on current market conditions. But there are always stocks that are going up.

The same can be said for weak stocks. Regardless of the environment, there are always stocks that are going down, too. 

We already have multiple scans focusing on stocks making all-time highs, such as The Hall of Famers, The Minor Leaguers, and The 2 to 100 Club.

We filter these universes for stocks with the best momentum and relative strength characteristics. 

Clearly, we spend a lot of time identifying and writing about leading stocks every week via multiple reports.

Now, we're also highlighting lagging stocks on a recurring basis.

Welcome to the Short Report.

We publish this...

I hear ya.

You don't want boring words.

You want trade ideas!

We know we haven't published many over the last year. But this has been a purposeful decision.

Think about what's happened. People who forced old strategies in this bear market were culled.

This environment has been the polar opposite to the Solana summer. You can't buy random shitcoin breakouts and multi-bag trades within a few days.

It just hasn't been that kind of market.

But this is potentially changing.

It's the weekly currency edition of What the FICC?

If the US dollar index $DXY is going to catch higher, it has a funny way of showing it. I haven't ruled out a bout of dollar strength.

Nevertheless, I'm preparing to play USD weakness.

Check it out!

The Dollar was the catalyst all along.

She was always the one.

The strong negative correlation between stocks and the US Dollar has been consistent since 2016.

When the Dollar is weak, stocks rip. End of story.

Look at how well stocks did in the 4th quarter while the US Dollar Index had its first 3 straight months of losses since the end of Covid, which if you recall sparked the greatest 52-week period for returns in the history of the stock market.

I still think it's important to focus on the Dollar, so here are some potential levels of future interest:

The next new position in our Paid-to-Play portfolio is:

This week we're looking at the stock from the Metal sector.

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 largest insider buy on today's list is a Form 4 filing by RA Capital Management.

The hedge fund reported a purchase of roughly $25 million in Fulcrum Therapeutics Inc $FULC, increasing its ownership stake to 23.8%.

From the Desk of Kimmy Sokoloff

$MSFT reported last night, and, at first, it rallied above $250. And then management had their conference call.

We'll see how it acts, if dip-buyers show up or it just heads back down to $226.

Vega risk is real.

— Sean McLaughlin, NLD 📈 (@chicagosean) January 24, 2023

I tweeted that earlier today as I was feeling my position value decay away for no conceivable reason as the market was coasting sideways.

I felt helpless as my index options position was melting away, far beyond the level my theta risk suggested it would in a quiet market.

It turns out, the quiet market was precisely the reason.

It was a stark reminder to me: Long Vega also entails risks that I need to be aware of.

Most people, myself included, tend to worry about getting caught short volatility (short vega) in a market environment where volatility is rapidly rising. We’ve all heard the stories of traders holding naked short options that were overleveraged into a volatility spike. Those stories make the headlines. And rightfully so.

So it’s easy to forget that being long volatility can be just as painful when volatility is grinding lower as VIX certainly was today:

From the Desk of Ian Culley @IanCulley

I haven’t ruled out a US dollar bounce. 

But it seems less likely with each passing day.

Other major global currencies are regaining lost ground following a year dominated by dollar strength. It shows in the US Dollar Index $DXY as it continues to slide back within its prior multi-year range. 

Lower lows for the DXY will not instill confidence in dollar bulls. Meanwhile, savvy investors should take its performance as a signal to buy other currencies.  

Here are two of my favorite setups from the forex markets…

Check out the GBP/USD pair on the verge of completing a multi-month reversal formation:

This chart has the hallmarks of a classic inverted head and shoulders with a neckline at 1.2425 (the Dec. 14 close). That’s our risk...

From the Desk of Kimmy Sokoloff

There was a major glitch at the New York Stock Exchange today, and it really did a number on the opening of the market.

Prices were all over the place, and names were halted.

Three of my positions below went to my target. But due to the glitch they won't get filled today, which they really should.

It was a day to step aside.

From the Desk of Steve Strazza @Sstrazza

Last week we held our January Monthly Conference Call, which Premium Members can access and rewatch here.

In this post, we’ll do our best to summarize it by highlighting five of the most important charts and/or themes we covered, along with commentary on each

Let’s get right into it!

From the desk of Willie Delwiche.

Incoming economic data has been weaker than expected but our Macro Health Status report suggests the market is looking past current risks to brighter days - or perhaps it’s just whistling past the graveyard.

Why It Matters: On its surface, incoming data is consistent with recession. Aggregate hours worked in the economy are shrinking, real retail sales and industrial production are contracting and housing market activity remains a shambles. The Leading Economic Index from the Conference Board is signaling that a recession is on its way - and it has an unblemished record in this regard. But we are not seeing evidence of building stress across our macro indicators. The longer the incoming data disappoints and the longer the Fed feeds the economy a starvation diet of liquidity (M2 is declining at a never before seen pace...

From the desk of Steve Strazza @Sstrazza

Our Top 10 Charts Report was just published.

In this weekly note, we highlight 10 of the most important charts or themes we’re currently seeing in asset classes around the world.

Consumers Favor Discretionary

The Equal Weight Consumer Discretionary vs. Equal Weight Consumer Staples ratio is resolving higher from a rounding bottom reversal pattern. Seeing this ratio make an upside resolution is a characteristic of bull markets as it indicates offensive positioning by investors and supports higher prices for risk assets.

From the Desk of Louis Sykes @haumicharts

I have to get this off my chest.

Wherever I look on Twitter, people are complaining about this rally.

They say it's manipulated.

They say it's all a conspiracy driven by Binance to get suckers to buy in before pulling the rug.

What's hilarious is that those same people were tilted when Alameda was around, arguing that they were manipulating the market.

Now Alameda's gone, they're looking for another scapegoat.

"My stops got hit, must've been Alameda."

No.

There isn't some random conspiracy entity chasing your stops.

You're just a shit trader.

The next new position in our Paid-to-Play portfolio is:

With stocks off to a very strong start to the year, we're certainly setting ourselves up for a positive January.

There is still about a week left, but the S&P500 is already up 4.7% so far this month.

Historically, if we finish up, and it looks like the chances of that are high, then it bodes very well for stocks throughout the rest of the year.

The largest insider buy on today's list is a Form 4 filing by EcoR1 Capital LLC, which reported a purchase of roughly $2.9 million in Zymeworks Inc $ZYME.

EcoR1 Capital also filed a Form 13G, disclosing a stake of 7.80% in the cancer biotech stock Janux Therapeutics $JANX.