January 2018 Redux?

“This plan, of betting only at a level at which I was emotionally comfortable and not advancing until I was ready, enabled me to play my system with a calm and disciplined accuracy. This lesson from the blackjack tables would prove invaluable throughout my investment lifetime as the stakes grew ever larger.” ~ Edward Thorpe, A Man For All Markets

Good morning! 

In this week’s Dirty Dozen [CHART PACK]  we look at the largest drawdown on cash since June 18’, the easiest financial conditions since January 18’, a large global credit impulse that’s rolled over, resilient market breadth, a breakout in risk-assets, and a breakdown in safe ones. Another long USD pair and more… 

Let’s dive in. 

***click charts to enlarge*** 

  1. Investors decided that now is a good time to start running down their cash balances and dramatically up their risk. BofAML points out that cash just saw its largest 2-week outflow since June 18’. Smart, smart, smart… 

  1. Global financial conditions haven’t been this loose since Jan 18’. 2018 is starting to pop up a lot in my research. Plenty of similarities to back then… Collective members know what I’m talking about. Anywho, you think we’re nearing the “as good as it gets” point? 

  1. These conditions have been eased by an incredibly large global credit impulse. An impulse that peaked at the start of the year. The economy and market tend to reap the benefits of a large credit impulse for 12-18 months after the impulse has peaked.

  1. Our long-term US Market Breadth Oscillator shows how well breadth continues to hold up. 

  1. This strong breadth and easy financial conditions make it odds on the SPX’s upside breakout from its 2-months of sideways ranging action will see further bullish follow-through. 

The measured move target is an Elon Musk approved 4,420 or roughly 3%+ above current prices. 

  1. In another sign we’re shifting into full-on risk-on we saw bonds breakdown below their 2-month bearish wedge. Expect bonds to fall (yields up) until they hit the equity market’s uncle point.

  1. Precious metals are likely to trade sideways to lower until that uncle point is reached and this period of risk-on is over. Our CoT oscillator shows that small specs bought the recent dip, which isn’t a great look. Further pain will help wring out this excess positioning.

On a positive note, PMs soon enter their strongest period of seasonality over the next 2-months. 

  1. MS shared some great charts last week that seems to confirm the “controversial” take that giving people bundles of free money actually makes them reluctant to work… A total head-scratcher, I know… 

  1. While a number of transitory components of CPI are rolling over (used cars being an example), more sustainable components are just starting to rise. 

MS writes: “Rents have continued to firm across recent CPI prints alongside an improving labor market picture, a relationship that resonates well with our shelter model. As the labor market continues to heal in line with our economists’ expectations, a V-shaped recovery for rents remains our base case.”

  1. While the FOMC surprised many with their more hawkish (than expected) bent and obstreperous dot drawings. The ECB errored on the opposite side, seemingly wanting to foei gras some Dove livers… 

  1. 11. We pointed out the long US dollar call on the button (link here) but now may be an opportune time to add to one’s EURUSD short. 

EURUSD long positioning is still in the 90th percentile. It’s entering a period of weak seasonality. It’s in a Bear Quiet regime. Yields differentials are turning against it. Momentum is as weak as it gets. And Citi’s FX Euro Pain Index shows there are a LOT of trapped longs. 

  1. The pair is trading in the middle of a longer-term sideways range. It’s currently in a minor bear wedge. A break below would offer a good spot to enter or add to your short. 

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. 

Thank you 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.


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.