“Markets tend to move in fits and starts, adopting a thesis and then abandoning it. We try to catch them if we can, but if we can’t, we are better off not trying.” ~George Soros
Summary: This week we take a deep look under the hood of this market. We note that the short-term path of resistance remains up (we’re long), but we point out the few missing pieces we need to see in order for us to start aggressively building positions again. We then cover the bull setup in BTCUSD and the relative outperformance from global defense stocks. And then pitch an aerospace name that looks set to once again outperform.
***The MO Macro portfolio is up +9.1% on the year. If you’d like to join our Collective as we tackle 2025 head-on, just click here. The Collective includes all of our research, a full library of reports and videos on theory and strategy, our proprietary market dashboard, a slack group where the team and I, plus fund managers and die-hards from around the world talk shop, exchange ideas, and shoot the shit. If you’re interested in joining our crew, just click the link below. Looking forward to seeing you in the group.***
Alright, let’s get to it.
1. Let’s take a quick look under the hood of this market. Last week, we got a Zweig Breadth Thrust. The Zweig is what I consider a primary thrust, meaning it’s rare and of high-signal value. The chart and table from Subu Trade’s latest shows why.
2. This primary breadth thrust comes on the back of capitulatory technical conditions.
3. And historically elevated implied volatility… meaning quite a bit of fear is now baked in (chart via SentimenTrader).
4. This level of IV often (though, not always!) marks major bottoms and leads to strong forward 12m returns (chart via SentimenTrader).
5. Our quant system turned bullish and got long the market last Tuesday. This is a shorter-term priced based system. But our macro discretionary process had been waiting for a series of breadth thrust indicators to trigger in order for us to start building back our longs.
The Zweig thrust gave us a green light to start doing just that. But… for us to turn aggressively bullish, we need to see a series of our key Breadth/Thrust indicators confirm the Zweig. Below is our Breadth and Trust composite score. A move above +8 is what’s needed for an all-clear (we’re currently at a +6).
6. We look at breadth from a number of different angles in order to better understand what’s actually going on under the hood of the market. Below is our breadth divergence aggregator. A reading of a +4 or more indicates a major bottom (green highlights). A zero indicates a major top (red highlights). The current reading is a +3.
7. Our Breadth Thrust and Capitulation Aggregator is also giving us a +3. A reading of 4 or higher is needed to mark the start of a new major bull trend.
We may see this indicator, or the ones above, trigger this week or next, or not at all… Until then, we’ll be operating under the assumption that we’re in a large volatile sideways range, where we want to be more tactical (quicker to take profits and move up stops and sizing smaller).
8. If you’re looking to get long the BTCUSD is a good choice (we got long the other week). Large Specs flipped short last week right before the bullish thrust. We’re looking for spots to add.
9. My teammate Chris shared this Gold/Brent spread chart in his weekend’s Setup email (link here) . There’s a lot of embedded macro information in this chart alone, which Chris goes into. It’s definitely worth a read.
10. Trading gold on the long side has been one of our bigger money markets over the past two years. And we remain highly convicted on its longer term prospects. In fact, the cyclical bull market in gold hasn’t even truly begun yet.
But… the trend has turned parabolic and we’re starting to see the peanut gallery — along with Youtube punters — yap away about it. So it’s likely we’re in for an extended pause/consolidation.
11. During large market shakeouts like the one we just experienced, it’s telling to see which industries/thematics recover the fastest (or don’t sell off at all). One area that’s been leading the market for the past two years and is already back to making new all-time highs, are global defense stocks. Our equity book has been concentrated in Defense and Miners this past year, including Rheinmteall AG (RHM) which is up +162% since we entered last year.
12. Another name in this thematic that we recently added is Rocket Labs USA (RKLB). RKLB was a momentum leader in this last bull leg. It retraced over 50%+ from its highs but has now rebounded off its lower band, which gave us a good spot to get long and nestle in a tight stop.
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Thanks for reading.
