I tell my father’s story of the gambler who lost regularly. One day he heard about a race with only one horse in it, so he bet the rent money. Halfway around the track, the horse jumped over the fence and ran away. ~ Howard Marks (h/t@charliebilello)
Summary: SPX and QQQ hit all-time highs (not bearish), semis show improving breadth (not bearish), and Gold is breaking out in a Bull Quiet regime with miners historically cheap. Rent inflation is dropping fast, which could pull core inflation to the Fed’s 2% target, supporting a bullish bond stance. WTI crude remains in a compression regime, signaling a big move ahead, while selective FX trades like GBPUSD and USDSEK offer reversion opportunities. Cybersecurity is a key growth theme, with WisdomTree’s ETF nearing a breakout.
Alright, let’s get to it.
1. Both SPX and Qs put in weekly closing all-time highs last week. Reminder for those who need it but new all-time highs are not bearish.
2. A few weeks ago, we shared this chart showing the % of semiconductor stocks above their 200-day moving average were nearing a major oversold signal. They never quite crossed below that threshold but they have now started to turn up (h/t @dualityresearch).
3. If the breadth rebound in semis continues, it could resolve our only negative divergence in our Market Internals indicator, which narrowly missed a major buy signal last week.
4. Gold is trading solidly in a Bull Quiet regime and is breaking out from its minor compression zone. We’re long and will be adding when given technical opportunities to do so. We also have resting buy stops in silver.
5. Gold miners are cheap… via @GarrettGoggin “Gold Miners are trading at 6.4X FCF the lowest multiple since at least 2015. I’ve never seen value like this.” Brandon recently updated his thoughts on our favorite miners here.
6. These past few weeks, I’ve been writing about how the inflationista narrative has become somewhat consensus, which is why we’ve turned moderately bullish on bonds here. I don’t see the impulse in the data, not in the labor market or wages.
Also, forward-looking indicators on housing inflation, like the Cleveland Fed’s new rents index and CoreLogic’s single-family rent index, are plummeting, which is critical for broad inflation metrics like CPI and PCE. The shelter component accounts for roughly 80%+ of the YoY change in inflation, a sharp drop could quickly bring core inflation back to the Fed’s target.
7. WTI crude has reversed right where you’d expect it to, at its upper weekly band, 200wma, the middle of its more extensive range, all while in a Neutral SQN regime. It remains in a larger compression regime, indicating that a BIG trend is coming. I’m directionally agnostic and will wait for the price to tip its hand.
8. 10 Themes for the next 5 years from Bofa, with highlights by me.
9. Bofa on the booming economy of cybercrime: “The global cost of cybercrime is expected to surge to US$15.63tn by 2029-30 (source: Statista). At the same time, an attempted deepfake attack occurs every 5 minutes (source: Onfido, Entrust). The number of deepfake videos has been doubling every 6 months since 2018 (source: Sensity, Information Matters). And deepfake damage costs are projected to reach US$40bn by 2027 (source: Deloitte). Finally, we need to reskill 1bn people by 2030, which is a third of all jobs worldwide, because of technology disruption (source: WEF, OECD).
10. WisdomTree’s Cybersecurity ETF (WCBR) is days away from completing a major 4-year inverted H&S pattern on the monthly.
11. While DXY put in a smaller H&S top last week. I remain a long-term US dollar bull since, historically, these Core-driven trends tend to last until there’s a recession. Then the USD catches a recessionary bid before rolling over into a cyclical bear. This time is likely to be no different. However, no trend goes straight up, which is why we got long GBPUSD last week.
12. USDSEK is another pair set up for a clean reversion trade. Below, I have the pairing inverted since it’s easier to illustrate. SEK is at a significant support level that’s seen it reverse a number of times over the past few years.
The MO portfolio officially closed things out with a +50.4% return on the year. The team and I will be publishing our eoy review soon, where we’ll dive into our painful mistakes and total blunders, as well as the things we’ve learned and what we’ll try to do better in the year ahead. So keep an eye out for that. And if you’d like to join our Collective as we tackle 2025 head on, just click here.
Thanks for reading.
