From the desk of Willie Delwiche.

When They All Look Higher, Watch Out Below

Young investors were swept away in the 2021 speculative bubble and came into 2022 with lofty expectations.

The Numbers: The University of Michigan Survey of Consumers shows that a record 70% of investors in the 18-34 age group came into 2022 expecting that stocks would rise over the course of the year. For the 35-54 age group it was 61% and for those 55+ it was 59%. As of August, all three groups were below 50%, with expectations among younger investors getting more in line with those who have been through more market cycles.  

Why It Matters: Young investors are learning liquidity lessons in 2022 that are as important as they are painful. Investors of all ages are having to reckon with a less favorable backdrop going forward than persisted in recent years. While expectations for the year ahead are now off their extremes, they don’t look historically washed out at current levels. 

In this week’s Sentiment Report...

From the Desk of Kimmy Sokoloff

It was a very uneventful day, even though we had the Fed minutes out at 2:00 p.m. ET.

The $SPY stayed below 360 and held onto the lows at 355.71. 

Look, we're not going to sugarcoat it: it's hard out there right now.

Regardless of your timeframe, if you're trying to make aggressive long or short bets in this tape, you're getting chopped up. So are we.

These types of markets grind us out and wear us out. It is what it is. We can't choose the market we're given, we can only control how we react to it.

This much we know -- forcing directional bets right now feels like a fool's errand.

But with options premiums elevated across the board, there are opportunities to put on delta-neutral short premium trades where charts suggest some consolidation may be taking place. However, we need to be careful not to sell premium on stocks that have earnings releases coming up soon. So to avoid that all together, we're going to limit our universe to index and sector ETFs.

The best trade I ever executed was a loss.

That is not a typo. I lost money on this trade. Actually, it was a series of trades. But it was executed with one decision and one combination of keystrokes.

It was the summer of 1998, and it was my first year trading.

The Long-Term Capital Management debacle was weighing on markets. There was money being made on the short side. Big money.

Many of the more successful traders in my office had already earned a boatload of cash with aggressive short trades on this particular morning. And at lunchtime, they decided to head out to the golf course to celebrate another day of crushing the markets.

But not me.

Nope, I was still a piker trader at that time, still trying to figure out how to stop losing money. So while the rest of the guys were high-fiving each other on the way out the door to the golf course, I stayed at my desk banging keys, trying to catch up to the big shots.

As we moved through the sleepy lunch hour, markets were showing signs of another leg down and I was building a short position in about 8-10 stocks. Slowly at first. Small amounts of shares. Nibbles, really.

But my...

We've adjusted a position in the Paid-to-Play portfolio today:

It's no secret.

Crypto and legacy markets have traded together for some time now. Apart from the recent lack of volatility in the former, it's all been one market.

We don't need to overcomplicate this.

Just look at the ratio of the High Beta ETF $SPHB against the Low Volatility ETF $SPLV overlaid with Bitcoin since the onset of the pandemic. They look pretty similar, right?

From the Desk of Kimmy Sokoloff

Volatility reigns, and it surely proved itself yesterday with the massive drop in the indices starting around 2:45 p.m. ET.

To me, the S&P 500 would have to get above and stay above 3,667 and the $SPY above 365.50 for this market to trend higher.

Otherwise we can continue lower. SPY support is at 360, then 358. Resistance is at 364.

Cathie Wood's ARK Investment Management is on our list today, as the ETF provider just filed 13Gs for two of its healthcare holdings.

In one of the filings, ARK reported a 10.64% stake in the genomics outfit Ginkgo Bioworks $DNA.

ARK also revealed an increase in its ownership of CareDx $CDNA, from 6.89% at its last filing in February to 10.83% today.

We debuted a new scan recently which goes by the name- All Star Momentum.

All Star Momentum is a brand new scan that guides us toward the very best stocks in the market. We have incorporated our stock universe of Nifty 500 as the base this time around. Among the 500 stocks that we follow, this scan will pump out names that are most likely to outperform the market.

From the Desk of Kimmy Sokoloff

Starting at 11:00 a.m. ET, the market started to gain some traction and trended higher from the morning lows.

A little before 3:00 p.m., news from the Bank of England sent the indices all the way back down to the lows.

A round trip, to say the least...

From the desk of Willie Delwiche.

The trend for bonds has been lower for two years, the trend for stocks turned South earlier this year and the trend for commodities rolled over last week.

Why It Matters: If the past pattern holds, the next trend change will be for bonds to turn higher. It’s hard to envision that with so much upward pressure on yields (in US & around the world). But if there is an unloved and under-owned asset, its bonds. 

In taking a Deeper Look we look at why it may still be too early to get aggressive on bonds even though that is where we are likely to see leadership emerge.

From the Desk of Ian Culley @IanCulley

One of the most valuable tactics I’ve learned in my career is the ability to capture a strong trend as it’s trending. 

I’m not talking about FOMO buying or blindly chasing breakouts.

In my experience, buying strong trends requires patience and discipline. 

Today, exercising these two key traits is especially necessary if you're trading the explosive US dollar. 

Navigating the latter stages of the dollar rally presents challenges, particularly in dealing with heightened volatility. However, it doesn’t mean we can’t join in on this trend responsibly as it barrels down the tracks... or, in this case, up them.

Crypto markets will be forced into making a decision sooner rather than later. Bitcoin's price stability just reached two-year highs.

Considering the mean-reverting nature of volatility, it's only a matter of time before this tight range resolves.

We've adjusted a position in the Paid-to-Play portfolio today:

From the Desk of Kimmy Sokoloff

As of 6:00 a.m. ET $SPY was trading at 356, below the most recent low of 357. We have since bounced.

As we know, this can all change by the time the market opens.

You know me by now, I prefer to look underneath the surface to see what's actually happening in the markets every day.

The headline number of, "What did the Dow do today" doesn't tell the full story.

I'm more interested in the performance of the individual sectors. Which types of stocks are leading and which ones are lagging?

When it comes to accumulation by institutions, it's easy for them to buy as much of the mega-caps as they want.

It's hard to leave your footprints with such massive market caps and liquidity levels.

In Small-caps, however, it's hard NOT to leave your footprints, especially for the largest financial institutions.

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.

This week we're looking at a stock from the Leisure sector. Stocks from this sector are in strong momentum.

From the Desk of Steve Strazza @sstrazza and Alfonso Depablos @Alfcharts

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...