A Dozen Reasons To Stay Bullish…   [Dirty Dozen]

“The best trades are the ones in which you have all three things going for you: fundamentals, technicals, and market tone. First, the fundamentals should suggest that there is an imbalance of supply and demand, which could result in a major move. Second, the chart must show that the market is moving in the direction that the fundamentals suggest. Third, when news comes out, the market should act in a way that reflects the right psychological tone.” ~ Michael Marcus

In this week’s Dirty Dozen [CHART PACK] we continue to push back on the bears, dissect the negative divergence in a key market internal to show why it should be ignored, go over confirming breadth measures, rising tanker prices, and more… 

  1. The play continues to be to buy dips and add on rips and not overthink this trend. We got a new weekly all-time closing high on Friday. The next level of resistance is the upper weekly band at 19k. My best guess is that we see some sideways compression for a couple of weeks along this resistance point, similar to the action we saw in Nov/Dec 23’. 
  1. As we noted last week the only negative development we’re seeing as far as market signals go, is in our Market Internals Aggregator which dropped further last week (chart on bottom right). 
  1. The primary culprit behind this drop is cyclical vs defensive. We can see that the other internals, for the most part, remain supportive of the broader uptrend. 
  1. When you see something anomalous like this you need to dig in to discern whether it’s signal or noise. Cyc v Def is comprised of (Industrials + Financials / Utilities + Consumer Staples). Looking at the one-month performance chart below of these four sectors we can see that the drop in Cyc v Def isn’t so much due to poor performance from our cyclical sectors but rather due to strong outperformance from the utility sector. 

Now usually when you see the utility sector begin to outperform it’s a bearish sign that the market is pricing in slower growth and so capital begins to seek out safety. But this time around, it’s not that. The run in XLU is due to latecomers FOMO’ing into the AI theme. They’re buying utilities on projections of data center energy demands and because they’re afraid to buy the direct plays as they’ve “gone up too much”. 

This means we should pay less attention to our aggregate internals indicator for the time being, and more attention to how the other individual components continue to trade. 

 5. Another simple data point we track each week is all US exchange new 52-week lows. Specifically, we look for crossovers in the 50-day moving average (green line) and the 200-day average (yellow line). When the green line crosses above it means broader market breadth is deteriorating, and vice versa when it crosses below the 200dma. It currently remains firmly below the 200-day. 

6. Large specs increased their short position in the SPX last week. Again, this is just another thing you don’t typically see at tops. 

7. And not to beat a bullish horse to death but the NYSE advance/decline line is making new all-time highs, along with the index. 

8. And just to keep things sober, I find this to be interesting from BBG’s Simon White: 

“Not only are the twin tail risks of a downturn or resurgent inflation being ignored, but a near-impossible ‘immaculate acceleration’ of boomy growth and benign price appreciation is becoming the base case… we can estimate what the probability of those are by inferring from SOFR options the odds the Federal Reserve’s rate drops below 3% or rises above 6%.”

9. As well as this from @WarrenPies who wrote “The are early cracks forming in the labor market. We examined the +700 BLS industries to determine which have demonstrated the best leading tendencies into a recession. This group is now in a drawdown from 3, 2, and 1 year highs”. 

My read of the current environment is that yes growth is cooling and along with it, the labor market. But these are from high levels and the data is still nowhere near the point where we should begin to start seriously entertaining concerns of a recession. In addition, we’re in an election year and this admin has shown itself willing to be aggressive in pulling whatever levers it needs to court voter favor.

10. It’s been “four months since a liquefied natural gas tanker passed through the narrow strait separating the Arabian Peninsula and Africa, a testament to how violent attacks there have upended global energy trade,” writes BBG. 

11. Longer shipping routes caused by disruption effectively means less tonnage available to ship things. This means rising costs to ship goods, which means more profits to shippers, and greater demand for ships. We can see on the chart below that tanker vessel prices have doubled over the past two years. 

 12. Here are some of the top-performing holdings over the past year from the Global Shipping ETF (BOAT) (chart via Koyfin). For tankers check out the charts of STNG, TNK, TK, and the like. 

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.