Are We Headed For An Earnings Recession? [DIRTY DOZEN]

“My fear of the markets has forced me to hone my timing with great precision. When I am trading properly, it is like a pool player running racks. If my gut feel of market conditions is not right, I don’t trade” ~ Mark Weinstein

In this week’s Dirty Dozen [CHART PACK]  we look at conflicting (noisy?) macro data, a new low in bearish sentiment, another rare breadth thrust signal, bad liquidity, options markets driving equity markets, and a long E&P small-cap trade, plus more… 

**Note: Enrollment into our Collective kicks off today and will be running into the end of the week. The Collective is our full-kit soup-to-nuts service that provides research, theory, and a killer community that consists of dedicated traders, investors, and fund managers from around the world. We’ve been told that there’s nothing else like it on the web. If you’d like to tackle markets with our group (whom, I should note, has been having a great year in markets), then just click the button below and sign up. And, as always, don’t hesitate to shoot me any Qs!***

  1. Some highlights from BofA’s recent Flow Show.


  1. B&B fell again to 0.4 last week, it’s lowest reading since June of 2020… 


  1. A 100% YoY increase in the price of oil tends to precede (partly cause) bear markets. 


  1. The small-cap space has some of the more constructive charts around right now. There’s a lot of great setups and value to be found if you know where to look. We’ll be writing about a few of our favorites later this week. 


  1. Another breadth thrust via the great twitter follow @mark_ungewitter, who shared: 

“Just one additional case since 1965 in which 80% UVOL followed within three sessions of triple 80% UVOL: October 11, 1982. 

Worth noting that frequency of 80% UVOL nearly doubled post-2001, probably due to decimalization, high-frequency trading, and/or popularity of indexing.”


  1. So we have a solid contra signal in bearish sentiment and positioning, valuations which have compressed, and consecutive breadth thrusts following capitulatory selling. This is a recipe for a multi-week rally. The only missing ingredient is liquidity, which remains abysmal. For a durable bottom we need yields to settle down.


  1. @IanRHarnett shared this great chart showing US CEO Confidence as a lead on profits. No doubt we’re headed for an earnings slowdown of some sort. What will matter is whether we get an earnings recession or just a deceleration. My money is on the latter but these noisy macro times call for weak opinions.


  1. While CEO confidence may be in the dumps, the Philly Fed State Coincident Index is as good as it gets, showing increasing economic activity across all 50 states. We’ll see this one start trending down weelllllllll before any economic recession.


  1. @MrBlonde_macro published a post over the weekend that’s worth a read (link here). Here’s a chart and a snippet. 

“The equity valuation compression in the last 6mos is meaningful and now finds itself in pre-covid average range of ~15-18x.  Is that too high? Probably given macro conditions of inflation and fed rate hikes, but its also come a long way from 22x late last year.  Also notable, at least from tactical trading standpoint, is valuation undershot the -2 sigma band by an amount similar to past corrections which brought a pause in the pain.”


  1. Kris Sidial, aka. @Ksidiii on the twitters, is one of the very few guys I trust for help with deciphering what’s truth and what’s BS when it comes to the world of volatility (ie, gamma, vanna, charms, and whathaveyous…). He recently shared with me a paper he and his team at Ambrus Capital put together titled Volatility and the Changing Market Structure Driving U.S. Equities. Here is the link and a graph from the report. It’s a must read.


  1. Crude (Dec 23’ contract pictured here) looks like it’s entering a parabolic run. It remains in a Bull Quiet regime. Speculative positioning is coming off low levels. Seasonality is good. And China opening back up doesn’t hurt. We’ll be adding to our position on pullbacks and consolidations.


  1. Laredo Patroleum (LPI) is an Oklahoma based E&P that trades for roughly 3x next year’s earnings. The chart below is a monthly. It recently completed a 3-year cup-n-handle.

Thanks for reading.

Stay frosty and keep your head on a swivel.

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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.