Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected. ~ George Soros
In this week’s Dirty Dozen, we talk Bull Volatile regimes, signs of short-term bottoms mixed with increasing intermediate risks, then cover USDCAD breakouts and the deteriorating US fiscal picture, plus more…
1. SPX entered a Bull Volatile regime last week. And as my partner @ChrisDMacro noted in this weekend’s Sunday Setup, Bull Vol regimes are a condition and not a catalyst for a market top/corrective period.
This is something to take note of as the market’s underlying characteristics are changing, which means it’s a good time to be a bit more on your toes.
2. Last week, I shared evidence of a shorter-term bottom and growing signs that we’re headed toward a more significant corrective period after perhaps a bit more ST upside. Here’s another data point supporting the former. The % of R3K stocks below their lower Bollinger Bands spiked the other week to their highest levels since the COVID bear market lows.
This likely means last week’s bottom holds for a bit, but it also serves as more evidence of a changing market structure, which is concerning.
3. We also discussed the concerning trend of the McClellan Summation index. Well, SentimenTrader shared this over the weekend that includes the NYSE Net High-Low chart, writing:
“For most of the past two years, most, if not all, signs of a healthy market have been present. Those signs are starting to fall off due to the type of selling pressure noted above.
“A couple of the primary ones we watch are the net percentage of securities traded on the NYSE that hit 52-week highs minus 52-week lows and the NYSE McClellan Summation Index, a long-term view of internal momentum. For the first time since last fall, both are in unhealthy territory below zero.”
4. And “This ended the fourth-longest streak since both indicators had been in negative territory since 1962. Even though most of the past 40 years have been dominated by bull markets, forward returns after the ends of similar streaks were relatively poor. The S&P 500’s upside was limited in the months ahead since the 2008 global financial crisis.”
5. The recent spike in yields is pushing our 10yr yield oscillator closer to triggering a 90% sell signal. Historically, this leads to poor forward returns, as shown by the red highlighted areas below.
6. More signs that investors have gotten a bit over their skis. Chart below shows rolling 3yr aggregate US fund flows. They recently jumped to 100%. Red highlights mark past instances.
7. If USDCAD can close out the month around these levels, then it’ll confirm a monthly bull bar breakout from a 10-year rectangle and a 2-year major compression zone. This is a beauty of a chart. We’re still long.
8. CADUSD yield spreads are what’s driving this one lower.
9. BBG’s Simon White offers the contra to my current USD bullishness, writing:
“The dollar faces weakness in the medium and longer term as the US’s net indebtedness with the rest of the world grows.
“The latest data on the US’s net international investment position will be released by the Bureau of Economic Analysis (BEA) later today. The NIIP is the difference between the assets held abroad by the US versus the US assets held by foreigners, i.e. liabilities of the US. At current trend, the NIIP could end up dropping below -100% of GDP with today’s release for the third quarter.”
10. And “Much of the drop in the NIIP has come from foreigners owning more US assets. TINA now applies not simply to equities, but US equities, as earnings and earnings expectations in the largest US companies surpass firms in the rest of the world. This is showing up in the US’s external accounts as well. The US’s current account deficit is widening, and sat at -3.6% as of the third quarter.
“One of the drivers has been net primary income, which has turned negative for the first time in at least three decades. It’s unlikely to improve again as US yields continue to rise, reflecting inflation concerns. It also reflects supply worries. Adding the widening budget deficit to the current account deficit gives the twin deficit.The US’s is now larger than any other major EM or DM country bar Brazil, relative to GDP.”
11. Last week, I shared a chart noting the low DSI reading in 10-year bonds, which suggests they’re setting up for at least an intermediate bottom soon. I’m looking at 5s as they’re nearing a range that has marked intermediate bottoms four times over the past two years. Note that the chart is weekly.
12. Our HUD multichart shows oversold technicals, supportive positioning and sentiment, and improving seasonality.
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Thanks for reading.
