A Golden Bull…  [Dirty Dozen]

What matters, as I say, is the background, not the foreground because the foreground is where everyone is looking. What matters in financial markets -and in life? -is not what you see straight ahead but what you glimpse out of the corner of your eye. ~ John Percival “The Way of the Dollar”

In this week’s Dirty Dozen [CHART PACK] we discuss major breakout failures plus major breakdown confirmations. We look at troubling developments in breadth, the looong lag of monpol this cycle, and end by covering the strength in both DXY and gold, plus more…

1. With only two trading days left in the month, it’s looking like the SPX will end October at its Apr 23’ breakout level (around the 4,100 range). A significant move below this would negate the previous breakout and put the odds strongly in favor of a move back toward the Oct 22’ lows.

2. RTY is also looking like it’s going to end the month on its lows. A failure to soon reverse here would kick up the odds that the broader market is entering a larger downtrend.

3. Breadth is getting oversold but if you look at RTY aggregate breadth (across multiple timeframes) as a percentile, we can see that it’s still above the depressed levels that tend to mark major bottoms.

4. And we’ve been pointing out the deteriorating picture of longer-term breadth for the past two months. These indicators continue to deteriorate in a way that is certainly not reflective of a new cyclical bull market but is in fact much more like the resumption of a bear, and at best a larger sideways volatile regime.

5. Aggregate large spec positioning on a 3yr percentile basis remains quite long, especially considering the price action over the past few weeks. Large and small spec positioning in the SPX is at its 100th 6-month percentile and large specs are also at the 100th 6-month percentile in small-caps as well.

This is not what bottoms look like.

The counterpoint to this is the Dow where specs are crowded short.

6. There are some positive developments though. The other week we got the buy signal in the BofA B&B indicator and we’re nearing a buy signal in our NAAIM oscillator. 

This week and next should be very telling in general on whether we’re seeing a major change of trend or if this dip too will be bought. I’m increasingly thinking it’s the former. But, as always, price is king and we will play the tape as it unfolds.

7. High nominal growth born from fiscal excesses has greatly delayed the lagging impact of monetary policy. It has also raised the level of tightening needed to bring about a cooling of the labor force that’s needed to lower wage growth, ultimately nixing the driver of persistent inflation.

But the leads we track continue to suggest we’re getting closer to realizing more of these lagged impacts (charts via BofA).

8. The DXY continues to be an impressive chart and we continue to be long it across a number of pairs.

The fact that all the USD bears have been able to bring to bear on the market after a monster 11-week consecutive bull bar run, is a sideways consolidation, is good sign that bulls remain in strong control.

9. What’s been driving this rally is obviously yields, with both the 2yr and 10yr spreads (weighted appropriately against DXY basket) in the 100th percentile. While nominal spec positioning remains quite muted (red = large specs).

10. We will be looking to add to our USDMXN long this week, either at this pullback reversal or on a close above the recent level of resistance.

11. Gold continues to be the market that most has my interest. If it can hold these levels and close the move above the key 2,000 level it’ll give a strong indication that a new major bull leg is getting underway.

12. And we’re seeing exactly what you want to see at the start of a major trend resumption, which is pervasive apathy.

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.