A Monday Dozen [CHART PACK]

One of my strengths over the years was having deep respect for the markets and using the markets to predict the economy, and particularly using internal groups within the market to make predictions. And I think I was always open-minded enough and had enough humility that if those signals challenged my opinion, I went back to the drawing board and made sure things weren’t changing. ~ Stanley Druckenmiller

Good morning!

In this week’s Monday Dozen we look at bitcoin’s technicals, small-caps nearing a relative performance 70yr+ trendline, easy Q3 earnings hurdles, spiking global economic uncertainty and more. Let’s dive in.

  1. Bitcoin (BTCUSD) is at a critical level having consolidated near the lower support of its triangle. BTC has proven to be one of the purest charting markets. Typically, you want to sell if price breaks below this support level as it means a continued downtrend is likely.

  1. But Peter L. Brandt (@PeterLBrandt) offers another interesting possible path for the cryptocurrency. Here’s a chart he shared suggesting that $BTC may be entering its “fourth parabolic phase”.

  1. This is a great chart from @waltergmurphy showing the 100-year history of US small-caps relative to large-cap stocks. Large-cap outperformance has driven the index down to its long-term 70yr+ trendline. The question now is, will we see small-caps begin to outperform (bounce off the trendline) or will we see a relative performance overshoot similar to what we saw in 2000?

  1. Consensus earnings expectations for Q3 have fallen considerably over the last two months. Average analyst expectations now call for EPS growth to fall by -2.6% Y/Y. Similar to Q1 and Q2 this negative sentiment is setting the earnings bar pretty low, which means an easy hurdle that the market should have no problem clearing.

  1. This chart from @MacroCharts of Citi’s FX Positioning Indicator shows that traders are extremely short US dollars. This could drive a further pop in the dollar which would not bode well for commodities or EM stocks, especially gold which is extremely stretched on a technical basis.

  1. The NYSE Advance-Decline Line made a new all-time high on Friday (chart via Sentiment Trader). This is not bearish. A new high in the A/D line typically leads to higher highs in the market in the following months.

  1. People are nervous. The Economic Policy Uncertainty Index shows that uncertainty over future economic policy is pervasive. In the past, a high index reading like the one we’re currently seeing has often preceded enduring gains in the market.
  2. This chart from Sentiment Trader is wild. ST notes that “Not only is the 4-week total outflow extreme, we can see that it’s been consistently negative. So much so that the 52-week total is nearing 2% of total fund assets, the most since the end of the 2002 bear market.”

  1. Via Bloomberg, “For the first time since 2009, dividend yields exceed 30-year Treasury yields”.

  1. The Aggregate Cash Flow Statement for MSCI US Large Cap 300 stocks via HSBC.

  1. Spec long positioning in the S&P 500 has fallen to levels that marked the Dec 18’ bottom and not far from those which marked the 16’ bottom in the market.

  1. A NASI buy signal was triggered on Friday. While my base case is for more chop ahead in US stocks, the odds of an impending bull run are increasing.

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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.

AK

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.