An Accelerating Buy Climax [DIRTY DOZEN]

“If you are a successful Game player, it can be a fascinating, consuming, totally absorbing experience, in fact it has to be. If it is not totally absorbing, you are not likely to be among the most successful, because you are competing with those who do find it so absorbing. ” ~ Adam Smith, The Money Game

Good morning!

In this week’s Dirty Dozen [CHART PACK]  we look at relative growth dynamics and what it could mean for the US dollar before diving into the latest BofA Bull & Bear signal, some more record flows data, a near record in the VIX, cheap downside protection that’s on offer, the crypto market cap / sentiment picture before finally ending with a mining company that packs a great technical setup, plus more…

Let’s dive in.

***click charts to enlarge***

  1. The falling US dollar has been a critical tailwind to risk assets over the last 8-months. So, in effect, being long stocks has a synthetic short USD component to it. We at MO have been sitting quite heavy in long equity positions (though we’re starting to slowly pare that back some). Because of this, we’re looking for ways to gain exposure to at least a temporary shift in market dynamics and I believe the technicals are being laid for a long USD rally to potentially begin sometime in the coming weeks. Diverging relative growth and the “USD Smile” factor support this possibility (chart from Nordea).


  1. The market is entering an accelerated Buy Climax. This means that near-term outcomes are skewed to the upside over the next couple of weeks as the odds we see rapid price appreciation are quite high. At the same time, this further raises trend fragility and will likely lead to an intermediate top.

BofA’s Bull & Bear Indicator is now up to a 7.7, close to an 8.0 “sell signal”. It’s last official sell signal triggered on Jan 30th 2018. According to BofA, the “median 3m returns from 12 “sell” signals  since 2000 = global stocks -9.0%, 10-year Treasury yields -45bp.”


  1. Last week we saw record inflows into global equities and tech as well as the largest drawdown in cash since 2019 (charts via BofA).


  1. Longer-term though, the positioning picture is more reflective of early/mid cycle dynamics than it is of late cycle ones.


  1. Although, the large wave in issuance we’ve seen over the last 12-months doesn’t help the longer-term picture, as this raises the supply side in our Equity Market Supply & Demand Model.


  1. Last week we saw an end to the second longest streak of VIX trading over 20 (246 days to be exact). Chart from @vixologist who is also a great follow on the twitters.


  1. Via BofA… “At last, an affordable tail risk hedge: the surge in option buying noted above has pushed prices for upside calls to the most extreme levels relative to puts in at least 20 years, as our derivatives strategists have noted. Investors looking for tail risk hedges may be able to buy option collars (buying a put and selling a call) at the most attractive levels in decades.”


  1. The incredible strength underlying this market rally means the downside is likely capped once we finally do enter a corrective phase. @edclissold points out that “The Nasdaq has lots of “fallen angels” so the A/D line has a downward bias. Even in the 674% rally from 3/09 – 2/20 the A/D was rangebound. It’s broken out to its highest level since 3/08. The 706 new highs is a record back to 1979. Incredible technical picture. @NDR_Research”


  1. The total market cap of all major cryptocurrencies just surpassed the $1trn mark. For reference, the estimated total market cap of gold is $9-$10trn.


  1. Sentix’s Bitcoin Sentiment indicator is at its highest level since Nov 2020. In the past, this level of enthusiasm has either marked an intermediate top or preceded a point of major acceleration.


  1. The improving “strategic bias” towards bitcoin amongst funds, as well as the surprisingly low premium to NAV in GBTC suggests to me that it’s probably the latter — this would also fit with our accelerating buy climax thesis.


  1. In a financial world that’s increasingly dominated by fiscal stimulus and policy makers with a bent to directing that stimulus towards climate fighting efforts, we want to be long the inputs that facilitate these ends.

Trilogy Metals (TMQ) is a mining company with large interest in copper, zinc, lead, and gold/silver projects in Alaska. The stock is breaking out of a 7-year cup-n-handle (chart below is a monthly). Seth Klarman’s Baupost Group is one of its largest investors.


Stay safe out there and keep your head on a swivel.

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