From the desk of Willie Delwiche.

Key Takeaway: There are plenty of adages to remind us that evidence of optimism re-emerging as stocks rally is neither surprising nor necessarily harmful to the health of the rally. When optimism gets overly excessive and begins to retreat we need to pay more attention to the risk side of the equation. What really caught our attention this week was that the imbalance in sentiment expressed by advisory services (Investors Intelligence) and individual investors (AAII) has been resolved. In mid-September, the AAII survey showed 22% bulls and 39% bears while the II survey had 50% bulls and 22% bears. Both surveys now show bulls in the 40’s and bears in the 20’s. Our sentiment chart of the week shows that when we’ve seen this degree of agreement between these surveys in the past, stocks have tended to do pretty well.

Sentiment Report Chart of the Week:  Stocks Appreciate Survey Agreement

It happened in March of this year, it’s happening again - the II and AAII surveys are in...

Feels good to be back from vacation! And I'm glad to see the stock market fared nicely while I was gone.

Looking around, we're seeing lots of fresh setups. But with earnings calls on deck, I'll have to be patient with many of my favorite ideas to let the event pass so as not to caught offsides by a sudden move in the wrong direction.

However, one of my favorite setups just got its latest earnings release out of the way this morning and thankfully it basically amounted to a non-event. Its recent breakaway gap continues to hold above its prior 3-year resistance level. And with the binary earnings event out of the way, options premiums have been evaporating throughout the day. This sets us up for taking a longer-term position at advantageous prices.

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

Crude oil has stolen the show, as it’s up more than 28% from its August lows.

What started as a questionable breakout has turned into a full-fledged rally -- and the broader market seems to agree.

Copper retested its all-time highs last week, interest rates are on the rise across the curve, and cyclical stocks have become leaders.

All of these events fit neatly in an environment where crude oil prices continue higher.

But what does the currency market have to say about the recent strength from black gold?

Let’s look at our Petrocurrency Index for clues, along with one forex pair that's showing strength against the US dollar.

First, we have our Petrocurrency Index overlaid with crude oil futures:

...

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 their direction and make them a pretty penny...

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 began rotating it with our flagship bottom-up scan “Under The Hood” earlier this year.

We recently decided to expand our universe to include some mid-caps… 

For about a year now, we’ve focused only on Russell 2000 stocks with a market cap between $1 and $2B. That was fun, but we think it’s time we branch out a bit and allow some new stocks to find their way onto our list.

The way we’re doing this is simple…

To make the cut for our new Minor Leaguers list, a company must have a market cap between $1 and $4B. And it doesn’t have to be a Russell component–it can be any US-listed equity. With participation expanding around the globe, we want all those ADRs in our universe. 

The...

(While on vacation until Oct 26th, I’m going to be sharing some anecdotes on my favorite trading strategies: why I use them, when, and how I manage them once they are on.)

A Vertical Spread is one where you are long options at one strike and short an equal amount of options at another strike, both in the same expiration series. These can be done both for debits or credits, depending on whether you purchased the more expensive option (debit) or sold short the more expensive option (credit). And these can be done with either all calls or all puts.

But my favorite version of the vertical spread is a Bull Call Spread, where I purchase an at- or slightly out-the-money call and sell a further out-of-the-money call against it to lower my net purchase price.

Over many years of doing this I've observed a few things.

One of them that stands out is how much more time investors spend focused on how much money they're going to make, and less time on what the market needs to do to prove them wrong.

You see, I don't care how high you think the stock goes. I want to know what the market would need to do to prove your thesis invalid.

That's way more important.

Any idiot can buy a stock that goes up. It's what you do with the stocks that don't do what you think they're going to do that separates the winners from the losers.

It's Saturday Morning Chartoons time. 

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.

You can find the whole list of trades here.

Below you'll find the full PDF of this week's charts:

From the desk of Steve Strazza @Sstrazza

Our Hall of Famers list is composed of the 100 largest US-based stocks.

These stocks range from the mega-cap growth behemoths like Apple and Microsoft – with market caps in excess of $2T – to some of the new-age large-cap disruptors such as Moderna, Square, and Snap.

It has all the big names and more.

It doesn’t include ADRs or any stock not domiciled in the US. But don’t worry; we developed a separate universe for that which you can check out here.

The Hall of Famers is simple.

We take our list of 100 names and then apply our technical filters so the strongest stocks with the most momentum rise to the top.

Let’s dive right in and check out what these big boys are up to.

Here’s this week’s list:

And here’s how we arrived at it:

• Filter out any stocks that are below their May 10 high, as this is when new...

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

It’s been impossible to ignore the strength in commodities this year.

The CRB Index is up more than 50% over the trailing 52 weeks. During this same period, the S&P 500 is up 32%, and bonds ($TLT) are down more than 8%.

Commodities are the clear leaders.

With breakouts from some of the most commonly observed contracts -- crude oil, copper, and natural gas -- more investors are coming around to the idea that commodities are a viable asset class.

Now that the buzz surrounding this once-forgotten corner of the market is growing, we’re seeing many commodities run into overhead supply zones. We think it would make sense for these contracts to consolidate here. Following such explosive moves off last year’s lows, some sideways action at resistance would be normal behavior.

Let’s look at a few charts that are at logical levels to digest gains.

First up is natural gas futures:

This has been a face-ripper, rallying more...

If you take the US Dollar out of the equation, it's a much different story for Gold.

While Gold continues to struggle below its 2011 highs, when priced in other currencies, it's been consolidating well above those former highs.

From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge 

September saw significant selling pressure in equity markets. The S&P 500 suffered its worst drawdown since last year, and many of the major indexes made a lower low. But when we look under the surface, it really wasn’t that bad. 

We didn’t get an expansion in new lows to confirm the new lows in price. Instead, these readings remained muted across most of the major averages in the US.

Since then, the bulls have regained control. Breadth has improved throughout October as the indexes have rallied back toward their former highs. Although we haven’t seen a real expansion in participation at the index level, things have definitely been moving in the right direction.

Let's talk about it.

Here’s a look down the cap scale at new 52-week highs for all three S&P indexes, from large to small:

Fewer stocks are making new highs today than they were when markets peaked back in September. 

But we are seeing some important...