A Monday Dozen [CHART PACK] #7.5

Technical analysis reflects the voice of the entire marketplace and, therefore, does pick up unusual behavior. By definition, anything that creates a new chart pattern is something unusual. It is very important for me to study the details of price action to see if I can observe something about how everybody is voting. Studying the charts is absolutely critical and alerts me to existing disequilibria and potential changes. ~ Bruce Kovner

Good morning!

In this week’s Monday Dozen we take a look at anxious markets and discuss the fuss over the inverted yield curve, plus we check in on liquidity, sentiment, and relative valuations and end with a sector that has all three going for it. 

1)  In last week’s Musings I shared a compilation of recent front-page newspaper headlines warning about an imminent recession, a painful bear market, and general hysteria over an inverted yield curve. My weekly copy of The Economist arrived yesterday in the mail with the following cover. I’m not aware of any significant market top in history that was so widely predicted by the mainstream media. #sentimentcheck



2) This great chart from Sentiment Trader shows just how loud the recession calls have become.

3) I wrote earlier in the year about why the “recession signaling” ability of the yield curve may not be as reliable this time around (link here). Regardless, an inversion of the 2-10 yield curve precedes a top in the SPX by an average of 7.3 months where the SPX averages a gain of 9.52%. It’s important to keep in mind that in markets the more something is closely observed the more likely it is to be altered in the process and/or already priced in.

4) Rather than being prescient in their recession calls, maybe the media is late? NDR’s Global Recession Probability Model has been signaling a high likelihood of a global recession since the middle of last year when much of the world entered a downturn. Global ex. US recessions last 14-months on average which would put the current global slowdown ending sometime in the next few months (chart via NDR and CMG Wealth).

5) BofAML’s Composite Recession model is still showing a very low likelihood of a US recession in the near-term. 



6) BofAML’s US Consumer Confidence Indicator shows that Trump’s trade war hasn’t been helping with the overall mood of things. But it looks like the latest market vol is getting to the Tweeter in Chief and the odds are rising that he’s going to fold his hand.

7) Liquidity is still very loose… Both Kansas and St. Louis Fed show little financial stress in the system, the 13-week rate-of-change in BAA bond yields is at its lowest point since the GFC (which make stocks more attractive on a relative basis), and BAA/BBB bond spreads are somewhat elevated but still below levels that should cause concern.

8) The MO Composite Sentiment and Positioning Index is now in buy territory (below the horizontal red line). I’d like to see it go negative but as of now the conditions have been met to switch my bias from bearish to bullish/neutral. My base case is that we see a rise from here followed by more sideways chop and vol but the larger macro conditions look to be setting up for another major global rally starting before year’s end. We’re just waiting on a catalyst (European stimulus, Chinese Stimulus, uber dovish Fed etc…).


9) Relative sector valuations show that materials and energy are trading on the cheap (chart via BoAML).

10) Speaking of energy, according to Sentiment Trader “The oil services fund is showing a pretty drastic drop in optimism over the past 2 weeks. According to the Backtest Engine, it’s only been this bad twice before.”

11) Jesse Stine shared the following in his latest market letter (link here),“Oil servicers nailed it to the penny on Thursday.  Sure smells like a cycle low is close.” I agree. 


12) Also from that same letter and via Sentiment Trader is this great chart showing the difference between Hedger positioning in copper relative to gold as a % of opening interest. A reversal in the key copper/gold ratio would spell trouble for long bonds. To understand why you can read my writeup on the hierarchy of markets here. 





Subscribe To Our Newsletter

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.