They say that you shouldn't kick someone when they're down. But in the markets, that's actually the best time to kick them, when they're already down.

We call that "Relative Weakness". When we're shorting stocks, those are the ones we're looking for.

In the case of Small-caps, they've been a heads up of a problem in the stock market since almost 3 months ago. They suggested stocks would struggle and would go sideways, at best.

And that's exactly what we've seen. Many stocks and sectors going sideways, and a bunch of them going down.

BUT, if we're going to go from Bad to Worse, then Small-caps are most likely the ones getting hit the hardest. 

You can see in these breadth numbers that the internals in Small-caps have not been improving, they've actually been getting worse.

From the desk of Willie Delwiche.

Key takeaway: Sentiment continues to shift from optimism to pessimism. Unlike the March optimism unwind, the current situation is associated with a waning risk appetite on the part of investors and a more challenging liquidity environment. This argues for patience from a tactical perspective and warns against a premature conclusion that the speculative excesses have been removed from the system. While the pullbacks in some of the speculative areas may seem substantial, they still pale in comparison to the run-ups that were seen in late 2020 and early 2021. In such an environment, less may be more. Surviving such unwinds is not only about preserving capital, but also maintaining mental health.

Sentiment Report Chart of the Week: Risk Appetite Wanes

High-yield corporate bonds are beginning to roll over relative to their safer alternative. This indication of cooling risk appetite is one of the key differences between the sentiment reset last March...

From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley

We’ve recently pointed out the possible double tops in the Dollar index and the USD/CAD, along with our overall outlook for further weakness from king dollar.

But can we find other areas of the market that could provide further insight into the US Dollar’s direction?

After all, many market participants are fixated on the direction of the US Dollar right now as it approaches its key mutlti-year lows.

Why does the Dollar matter so much to investors?

Firs of all, USD and risk assets have had a very strong negative correlation over the last several years. The USD Index bottomed in early 2018 as stock markets around the world peaked. Conversely, the dollar topped during the Covid sell-off when stocks bottomed out at their March 2020 lows.

To gain a clearer picture of the USD, we need to go beyond the Dollar Index and developed currencies.

Let’s look at a couple of charts of emerging currencies as they provide valuable information on broad USD performance, as well as...

This is the video recording of the May 2021 Conference Call.

From the desk of Willie Delwiche.

Key Takeaway: Mixed liquidity backdrop makes rebuilding risk appetites more of a challenge. Tailwinds that have fueled cyclical strength are tapering even if the Fed is not yet ready to. Breadth on a slippery slope from digestion to deterioration to downtrend.

While the indexes themselves continue to hold up relatively well, there is evidence of deterioration that cannot be overlooked from a tactical perspective. Whether this builds into a situation that argues for more defensive positioning from a cyclical perspective remains to be seen.

Our relative strength leadership group was unchanged last week. Financials, Materials, and Energy are the leaders at the large-cap level and are also holding up well at the mid-cap and small-cap level. Our industry group heat map reflects these leadership trends. There is little evidence here that cyclical value leadership is waning in favor of resurgent cyclical growth. Defensive sectors have fared better on a short-term basis but...

From the desk of Steve Strazza @Sstrazza

Welcome to our latest Minor Leaguers report.

We've already had some great trades come out of this Small-Cap focused column since we launched it late last year and began rotating it with our flagship bottoms-up scan, "Under The Hood."

To make the cut for our Minor Leagues list, a company must have a market cap between $1 and $2B. After applying price and liquidity filters, we simply sort by proximity to new highs in order to focus on the best players.

The goal is to catch the strongest names while they're small and still have serious upside potential. If any of these stocks ever climb the ranks to the big leagues, the returns could be huge. We're looking at 5-10x moves just to break into large-cap land!

And what better time than now to launch a small-cap-focused column? We've seen robust...

Strength in energy and metals continues.

The ASC team had a post out last week highlighting some bullish developments here, and the strength continues in early trading this week. And one stock, in particular, is threatening new all-time highs coupled with declining options prices --- my favorite kind of setup.

From the desk of Steve Strazza @Sstrazza

Check out this week’s Momentum Report, our weekly summation of all the major indexes at a Macro, International, Sector, and Industry Group level.

By analyzing the short-term data in these reports, we get a more tactical view of the current state of markets. This information then helps us put near-term developments into the context of the big picture and provides insights regarding the structural trends at play.

Let’s jump right into it with some of the major takeaways from this week’s report:

* ASC Plus Members can access the Momentum Report by clicking the link at the bottom of this post.

Macro Universe:

• Our Macro Universe continued its weakness this week as over 60% of our list closed lower with a median return of -0.18%.
• Procyclical Commodities were the weakest this week.
• Copper was down 3.73% remains in a bullish regime.
• Lumber was the hardest hit again this week, dropping over 7.22%.
•  The biggest winner of the week was the Volatility index again gaining over 7%
•  New highs have...

From the desk of Steve Strazza @Sstrazza

Our Top 10 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.

European equities are in the process of staging a reversal relative to global equities after forming a formidable base. If this ratio of the FTSE Europe ETF can decisively move above this downward sloping 7-year trendline, this would confirm the beginning phases of a new structural uptrend for a region that has acted as a perennial laggard in a Growth dominated environment.

Now that we’re finally witnessing rotation into Value areas like Financials and Natural Resources, Europe no longer is being anchored down by its constituents. That exposure is swiftly becoming a powerful tailwind.

The process of our analysis is such that we look at a variety of charts in order to arrive at a view at any given point in time. To make sure we're identifying new trends that are developing in the market, we have several breadth indicators that we track.

As we already know, the market has been in a bit of a mess off-late. Within this market move, different sectors have taken leadership- almost as if playing a game of musical chairs.

Over the weekend when I was going through the usual suspects (charts) I noticed a slight change in market activity. So here I am talking about it!

This week we're looking at two long setups this week. One in the Chemicals space and the second one in the Auto sector. While Chemicals have been among the gainers over the past few weeks, the Auto seems to be catching a bid off late.

We retired our "Five Bull Market Barometers" in mid-July 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.

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley

Gold has been one of the last places we have wanted to put our money over the past eight months, second only to Bonds.

Other areas of the commodities space, like Base Metals, Energy, and Ags, along with risk assets in general have experienced an explosive rally. While Precious Metals have gone nowhere. But are we starting to see signs that this could be changing?

Last week we pointed out that Lumber had reached our target and could be due for a pullback. And we’re seeing that play out.

The previous week we noted that other procyclical commodities within the Base Metals group were also reaching our targets and testing areas of potential resistance. And like Lumber and so many other risk-assets, they remain trapped below key levels of overhead supply.

So while much of these former leaders appear to...

From the desk of Willie Delwiche.

Every streak comes to an end. After a record 243 consecutive days of positive readings, the US economic surprise index slipped below the zero line this week. For a mean-reverting index that has historically spent as much time above zero as below zero, this was a remarkable stretch of better than expected data. While the data now is as strong as it has been at any point in the last year (in some cases, decades), expectations have now surpassed reality and so the surprise index is moving lower. This removes what had been a tailwind for equities and allows for a test of the resiliency of the current rally. Coupled with the tightening financial liquidity conditions and changing risk appetites,  this could make for a choppy summer in the stock market.

I'll be honest with you. I've been on cruises before. I don't think I have a need to ever do them again. I mean, the time spent "in port" was where the real fun for me was. Time trapped on the boat? Meh.

But, I know many people disagree with me and LOVE going on cruises.

I'm fine with that. Especially if it gives me an opportunity to make some money. And we've got one such opportunity on board!

It's always nice to sit down and talk about what the future is going to look like.

Currently, the largest hotel chain in the world doesn't own any hotels (Airbnb). The largest taxi cab company in the world doesn't own any taxi cabs (Uber).

Will the largest bank in the world not own any banks? Howard Lindzon says yes, "Banks aren't dead, they're walking dead".

This was fun. I learned a lot.

It gives me more reason to keep an eye on opportunities in the Crypto Markets.

I'm a chart guy, as you're all well aware. Price drives all of my decision making. But if you're interested in what's happening behind the scenes (I am), then this one is for you!