Summary: Same story as last week. And the week before that. And the week before that. Path of least resistance for the SPX remains up.
But we’ve entered a period of weak seasonality that runs through mid-October. Short-term breadth deteriorated last week, and rotation is picking up under the surface. Trend continues. Chop and vol come with it.
Ags broke out from their tightest monthly compression in 30-plus years. We’re long and buying, for reasons outlined below. The DXY triggered a significant sell signal — historically a precursor to poor returns. The pound is setting up for a major breakout amid bearish positioning. Natural gas producers are showing constructive tapes. And that’s just the start.
***The MO port is currently up +51.43% ytd in 26’. The Collective is where we discuss the theory behind the positioning, publish the differentiated research, track the book in real time, and argue it out with a global group of serious investors. If that’s your kind of room, join us in Slack. ***
MO Portfolio & Trades
1. The portfolio rose +680 basis points last week, leaving us +51.43% on the year, below our ytd high-water mark of +61%. We’re very long PMs and miners, EUR, MXN, and ETH. Long biotech, healthcare and defense. Long corn and KC wheat. Short dow.
2. The week ahead in data: Wednesday’s a big day — PCE in the morning, NVDA earnings after the close. Friday brings Warsh’s keynote at Jackson Hole.
3. We closed our ultra bond short last week for a small gain. We don’t care to fight the administration. Bessent’s announcement mattered less for the mechanism than for the signal: Treasury doesn’t want a higher long end, and it’s willing to act.
We may re-engage down the road. For now we’re shifting focus to other ops — Ags chief among them. The Bloomberg Ags index just broke out of its tightest monthly compression since ’95, which preceded a significant bull trend. Also, this setup looks nearly identical to the one we play in the BBG BCOM Index last year (link here).
Last week I interviewed a former MO teammate, now a SpaceX meteorologist, on the inbound Super El Niño. He’s an extremely sober guy, not prone to hyperbole. When he tells me the data points to the most significant El Niño since 1877 — an event that killed roughly 4% of the world’s population through drought and famine — I listen.
Markets are horrible at pricing extreme, anomalous events beforehand. Ags are set up for a major bull market. We’re long and buying.
The interview transcript is available for Collective members in the Slack and Research area.
4. Even without the El Niño tailwind, Ags were already setting up for a bull market — they’re simply following the Commodity Relay, a concept I first saw from Martin Pring. Precious metals kick off a commodities bull market, then industrial metals, then energy. Ags pull up the rear.
5. Positioning has shifted recently, but on an aggregate basis it’s still neutral.
6. Our lead technical analyst, Mike G, broke down the classical charting setups we’re seeing across the space in his latest weekly (link here). Below is corn — we’re long.
7. Cocoa’s another name on our target list for an entry. It’s coiling within a broader uptrend.
8. My teammate Dean Christians flagged this in a recent note: his Trend Composite just flipped negative on the DXY, triggering a sell signal. Similar signals have historically preceded poor forward returns for the dollar.
9. We’re long EUR and MXN, and looking to add GBP. The pound’s been compressing for 12-plus months in a rectangle regime, with price nearing the upper bound of that consolidation.
10. 3-Year Spec positioning is coming off the 0th percentile — past instances have tended to mark major bottoms.
11. Speaking of the pound: the FTSE 100 futures are giving us a pullback reversal off the lower daily band within a Bull Quiet regime. Clean technical inflection point to add size with little risk.
12. We remain bullish the broader trend in risk assets — that’s what the weight of the evidence suggests. Dean’s TCTM Risk-Off model recently fell back to zero. Not bearish.
A few measures of short-term breadth did weaken last week, and we’re heading into a period of weak seasonality through mid-October. Things likely hinge on whether bonds take out Bessent’s line or reverse here. Positioning in VIX futures is also stretched, which historically precedes higher vol. Base case: trend up, vol up, rotation continues.
13. Summary notes from GS’s latest Prime Services positioning report:
Positioning turned defensive fast: hedge funds shifted from buying to the fastest US-equity net selling since Liberation Day, cutting net leverage to a one-year low; selling was broad and concentrated in tech, cyclicals, utilities, and real estate.
- Index calm understates fragility: SPX/VIX remained relatively contained, but high-beta momentum and TMT/AI factor baskets suffered sharp drawdowns, signaling elevated under-the-hood crowding and factor-volatility risk
- Rates and growth are the key macro risks: rising long-end yields, curve steepening, policy uncertainty, and weakening signals from major consumer companies are pressuring duration-sensitive equities and raising concern over the consumer backdrop.
- Sentiment is cautious, not panicked: flows are described as broadly benign and positioning cleaner after de-grossing, while investors are adding gold/index hedges and chasing crypto; a bond rally could trigger meaningful CTA short-covering.
14. First Trust Natural Gas ETF (FCG) broke out from a major compression regime — its tightest since ’13, which preceded a significant 12-plus month bull rally. We’re long and buying here.
Thanks for reading.
