Coiling US Markets

“Bullishness is born as hope in the midst of despair. Hope swells to confidence and confidence swells to euphoria, and the process contains the seed of its own destruction and the birth of its opposite, fear. Fear is nurtured by falling prices and the two feed on themselves until they swell to despair. And so the cycle is completed -and ready to begin again with the birth of hope. This is both the way things are and the way they have to be.” ~ John Percival, “The Way of the Dollar

Good morning! 

In this week’s Dirty Dozen [CHART PACK]  we look at spring loaded indices with evidence tilting in favor of a coming break higher… we follow that up with bitcoin sitting at a major inflection point before diving into inflation surprises and related flows, along with what that could mean for the EURUSD. And then we check out a demographic housing boom graphic before finally ending with a high growth residential interior product distributor trading for cheap, plus more…

Let’s dive in. 

***click charts to enlarge*** 

  1. The New York Stock Exchange Composite Index (NYA) closed at an all-time high last week. Those highs are being confirmed by an upward marching ADL. That’s not bearish…


  1. The major US indexes have been coiling and building a springboard. NYA is likely leading the way. Odds favor breakouts to the upside soon.


  1. I’ve been keeping a close eye on the Qs since they looked the most vulnerable to a breakdown over the last few weeks. But… in another piece of bullish evidence, its short-term breadth turned up last week. Further positive follow-through in the coming days would give a decent breadth thrust confirmation of the path of least resistance up.


  1. Some amusing videos of mania from the Miami Bitcoin conference were circulating online over the weekend (link here). That’s not exactly the type of crowd sentiment you want to see if you’re long crypto. 

Bitcoin itself is looking precarious. It’s formed an o-i-i breakout wedge pattern on the weekly and daily charts. The technicals don’t look good and my bet is we see BTC eventually revisit the 20k price level. Maybe it breaks down right away or maybe it rebounds first before rolling over again. Either way, this type of sentiment needs to be reset for a more durable advance.


  1. Here’s the latest update from Sentix: “Bitcoin has been under heavy selling pressure for weeks. So far, we have seen little hope for a sustained price recovery. This has changed over the course of the week. While sentiment data remain depressed, strategic confidence may improve. 

“The balance of both indicators is shown in the Time Differential Index. And here we see that the index has moved closer to its buy zone. The chances of a price recovery have thus improved. However, TD signals are more promising when the sentiment data reflect more investor fear. This is not the case at the moment.


  1. I expect we’re nearing a local peak in inflation surprises within the next 2-3 months. With expanded UI benefits rolling off by mid September and supply bottlenecks getting worked through, we should be seeing a positive labor supply shock as we head into Fall. 


  1. Morgan Stanley points out how crowded some of the inflationary positioning has become, writing:

“A CPI report that misses to the downside – especially if it also impacted the Y/Y inflation rate, such as could happen with the June report (released in mid-July) could end up hurting TIPS breakevens. That much is clear. Such a downside miss on CPI inflation could also place a lot of upward pressure on US real rates, as investors might liquidate TIPS holdings, either via cash security sales or TIPS ETF sales. In a sense, this risk comes down more to technicals than fundamentals. A considerable amount of money has flowed into TIPS ETFs over the past 6 months (see Exhibit 9). And that flow, among others, has taken primary dealers out of most of their inventory (see Exhibit 10).”

  1. MS goes on to note the correlation between inflation bets and EURUSD, saying: 

“We think there is good evidence that investors are expressing their short USD view, based on inflation concerns, against the EUR. First, inflows into TIPS ETFs show a high correlation with EUR/USD (see Exhibit 12). Second, long EUR positioning in the options markets increased significantly in the aftermath of the release of the April CPI data on May 12, which surprised substantially to the upside.”

  1. We’re big bulls on nuclear as a leading baseload renewable energy source and strongly believe small modular reactors will become industry game changers in the coming future. The below graphs and stats on future renewable energy demand in China are from a recent Barclays report on nuclear.


  1. The quarterly chart below of the Uranium producer Cameco Corp (CCJ) shows that the 13-year bear market is officially over and a new bull cycle is well underway.


  1. Here’s an interesting housing demographic chart from Fundstrat showing the size of the millennial wave which will be going strong and steady until 2026. 


  1. A related small-cap housing play I’m planning on digging into is Select Interior Concepts Inc, (SIC). The company installs and distributes interior building products for residential interior design here in the US.

The company grew revenues at 25% in 19’ pre COVID. The stock trades at 7x EV/EBITDA. Insiders have have been gobbling up shares over the last year and it’s got a decent chart. I still got plenty of digging to do so we’ll see what find.

Stay safe out there 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.

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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.

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