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.

 

 

If you enjoy reading these Dirty Dozens each week then please feel free to share them on the Twitters, forward them to a friend, or translate them via smoke signal, etc… Every bit helps us get our name out there. 

Thanks for reading.

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

Subscribe To Our Newsletter

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.

AK

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.