A Bullish Turn Of Year Signal [Dirty Dozen]

Nurture your mind with great thoughts; to believe in the heroic makes heroes. ~ Benjamin Disraeli

In this week’s Dirty Dozen [CHART PACK] we cover bullish breakouts, strong turn-of-year and presidential cycle seasonality, a zero returning China, a bearish consensus in Ags, and a dirt cheap fertilizer stock to play for a rebound, plus more… 

1. We got the bullish breakout on Friday that we talked about last week. The SPX is trading in a Bull Quiet regime with confirming market internals, a supportive liquidity backdrop, and an increasingly parabolic trend. Current odds favor an acceleration to the upside.

2. Wayne Whaley’s TOY (Turn Of Year) Barometer fired a bullish signal this past week. Wayne Whaley is a legendary quant who once remarked that if he were limited to using only one indicator for betting on trend direction for the year, it’d be his TOY Barometer. 

There’s a good reason for this. A bullish TOY signal has a very high win rate. You can find more on how the TOY Barometer is constructed here.

3. Trend Fragility is high and our TF sell signal hasn’t yet reset, but a TF sell signal is only a condition and not a catalyst or reason to sell in and of itself. Another potential bearish conditional we’re tracking is our weekly Nervous & Number indicator, which is inching toward a sell signal — we’ll probably see it fire in a few more weeks. The previous sell signal marked the July 23’ top.

4. BofA’s Bull & Bear, a longer-term measure of sentiment and positioning, is currently giving a neutral reading. Meaning there’s still sentiment fuel to drive this market higher.

5.  This is an election year where markets tend to perform well. But this chart from T. Rowe Price shows that the first half of election years are historically weak and the strong seasonality doesn’t come until the third quarter. 

6. But BofA points out that this isn’t your normal election year. They note that “when Presidential Cycle Year 3 is up 20% or more, which occurred in 2023, Year 4  is up 100% of the time on an average return of 13.4% (12.6% median), which equates to SPX 5,400.”

7. This chart from BofA shows the current 4-year Presidential Cycle relative to the historical average. Again, note the coming period of weak seasonality over the the next 3-4 months. 

8. We’ve been big bulls on Japan for over a while now (examples here, here, and here). And while sentiment is beginning to shift, it’s turning up from very low levels. This chart from BofA shows how investors remain structurally underweight Japanese equities. 

9.  The UK has a housing problem, er, crisis on its hands. Decades of political red tape and NIMBY’ism have stunted the country’s homebuilding sector. The country needs more homes, it will build more homes, and those that build them should do well. We’re digging into the sector. ~ Brandon, Macro Ops Value

10. MSCI’s China Index is about to turn negative since its creation in 1992, as pointed out by @EconomPic. There are a number of reasons for this, the primary one being that Chinese companies are the more egregious share issuers globally. ~ Octavio, Macro Ops Quant

11. Sentiment and positioning in softs are at bearish extremes, especially in corn and wheat (chart via SentimenTrader). 

12. CVR Partners (UAN) is a fertilizer play that is largely driven by pricing in the corn and wheat markets. I first wrote about this stock back in Dec 2020 (link here) when it was trading for under $15 a share. Despite its meteoric rise over the last 3 years, the stock still only trades for 3x free cash flow and has a tiny flow of under 7mn shares. This name will rip once corn and wheat finally find a bottom.

Thanks for reading.

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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.


Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.