Dow Transports Breaking Out

“The people of the time scornfully looked down on earlier epochs with their wars, famines and revolutions as periods when mankind had not yet come of age and was insufficiently enlightened. Now, however, it was a mere matter of decades before they finally saw an end to evil and violence, and in those days this faith in uninterrupted, inexorable ‘progress’ truly had the force of a religion…. Now that a great storm has long since destroyed it, we know at last that our world of security was a castle in the air. Yet my parents lived in it as if it were a solid stone house. Not once did a storm or a cold draught invade their warm, comfortable existence.” ~ Stefan Zweig’s The World of Yesterday, (h/t Russell Napier)

Good morning! 

In this week’s Dirty Dozen [CHART PACK] we look at a coming acceleration in the Buy Climax, a breakout in Transports, a breather in junk spreads, relative ETF flows, and a VIX at technical oversold levels… We then dive into PMs, a buy setup in palladium, and a bearish signal in natty, plus more…

Let’s dive in. 

***click charts to enlarge*** 

  1. We’re looking for an acceleration in the Buy Climax in Qs. The measured move target is 15,770.

 

  1. Transports have broken out of their 3-month pullback.

 

  1. The widening in junk spreads has taken a bit of a pause which should provide some relief to risk assets, giving more fuel to the Buy Climax.

 

  1. @MacroCharts shared the following on the twitters recently, writing:  “ETF Flows are extremely crowded. Everyone has rushed back into Bonds, Tech & Defensives – and capitulated on Cyclicals. This is the complete *opposite* of Q1. A Cyclical rotation could trigger another violent unwind – creating a big opportunity into Q3-Q4. Be prepared.”

 

  1. VIX futures have put in 8 consecutive bear bars. There has only been 4 other instances over the last 25-years. Each one ended with a higher VIX 8-days later.

 

  1. You don’t hear many talking about India lately but the Nifty 50 has one of the strongest charts at the moment. The market recently broke out of a tight 2-month sideways compression regime and is stair-stepping higher in a Bull Quiet Regime.

 

  1. Gold tested the bottom of its 12-month bull wedge last week and the bulls came and drove PMs back up in a major reversal. This volatility is helping to shake out the crowded long positioning, setting PMs up for the next major leg higher.

 

  1. Spec positioning is finally back below the 80th percentile for both gold and silver.

 

  1. Palladium is in its tightest compression range since October 18’. Compression regimes lead to expansion regimes (trends) and the last time Palladium was this compressed it preceded a major reacceleration of its longer-term bullish trend.

 

  1. We’ve been natty bulls over the last year but the intermediate trend is showing signs of exhaustion. Its SQN recently crossed above 2.5, a level that’s only been seen 7 other times over the last 25-years. Natty traded lower over the following 30 trading days each and every time, with an average loss of 18%. 

 

 

  1. With that said, it’s oversold over the very short-term and bumping up against its lower Bollinger Band. Our backtester shows a strong upwards bias over the next 10 days, so look for a bounce before a selloff.

 

  1. Keep a close eye on MXN here (chart shows MXNUSD). It’s in its tightest compression regime in a few years and yield momentum as marked by our yield oscillator (shown below) has shifted greatly in favor of a stronger peso.

 

 

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Thanks for reading.

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

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