Big Opp In Barbarous Relic… [Dirty Dozen]

Oct 15

But barbarians at the gate are not the real cause of imperial collapse. They are a consequence of the failure to sustain social cooperation. As the British historian Arnold Toynbee said, great civilizations are not murdered—they die by suicide. ~ Peter Turchin “Ultrasociety”

In this week’s Dirty Dozen [CHART PACK] we cover the new record by the Mag 7, discuss why short-term odds favor higher stocks — at least large-cap ones — but then caveat that with worrying signs of long-term breadth and an inbound recession, plus more…

1. Here’s last week’s Flow Show summary with highlights by me.

2. BofA’s Bull & Bear indicator moved within a hair’s breadth of triggering a Buy Signal last week. This is in line with our other measures of sentiment and positioning which continue to suggest the intermediate-term path of least resistance is up.

3. The Magnificent Seven surpassed their market cap as a % of SPX all-time high (reached in 21’) this past week, climbing to 29.6%.

4. We will very soon enter the strongest seasonal period of the year for the SPX (chart via SentimenTrader).

5. Small-caps are on the ropes and may be about to fall out of the ring… As long as they were in this sideways range one was able to argue (as we did) for the bull case. If RTY starts a new cyclical down leg, then it will almost certainly be a signal that it’s just a matter of time before the broader market follows suit.

6. Our indicators of long-term breadth suggest the same. All are rolling over in what looks like a resumption of the cyclical bear.

7. But… but… soft landing?

8. BBG Economics nonlinearity model shows the distribution of risks around probable paths for unemployment is skewed heavily to the upside.

9. Since late 22’ we’ve been writing that a US recession is unlikely to start until the end of 23’ at the earliest. It’s increasingly looking like the economy will tip into one not long after the turn of the year.

10. Specs are bearish CHF, Dow, and Gold.

11. Last Monday we wrote about the oversold buy setup in gold which has so far played out nicely. And there’s good reason to believe that this move is just getting underway. Our sentiment indicator for Large spec and Money Managers has fallen below the sub-20th percentile. Historically, similar readings have marked major bottoms.

12. A monthly close above the key 2,000 level in gold would give the green light for a new cyclical advance. You can read more about how we analyze the market gold here.