Multiple Buy Signals…   [Dirty Dozen]

For eighteen years I followed the sea, took what it offered. It has brought me shipwreck and success, sorrow, danger, and unutterable happiness.~ Henry de Monfreid

In this week’s Dirty Dozen [CHART PACK] we look at a combination of multiple buy signals in stocks in conjunction with both bonds and USD bumping up against critical technical levels, indicating a high chance for mean reversion. We then talk Utes, an Ag play, and more… 

1. Here’s last week’s Flow Show summary with highlights by me.

2. Also from BofA: “stocks oversold: contrarian ‘buy signal; triggered when 88% of global equity indices trading below 200 & 50-day moving averages; it hit 80% on Tuesday; global stocks up 4% in 4 weeks after 14 buy signals since 2011.”

3. The Qs reversed right near their lower weekly Bollinger Band, still well within the expected range of a healthy ABC pullback/consolidation pattern.

4. Our Total Put/Call oscillator also triggered a buy signal on Friday as the indicator fell below 10% (green shaded areas mark past signals).

5. Falling bonds (rising yields) have been driving the USD higher and stocks lower. But the technicals suggest that bonds have maybe  hit a near-term low. 10yrs are reversing off their monthly band and have put in a double bottom on the daily chart.

This should be caveated with the fact that bonds have put in five consecutive monthly bear bars. This is rare sign of negative momentum and any pullback/consolidation period is likely to be somewhat brief (a few weeks or so).

6. The DXY has put in 11 weekly bull bars. This rare streak ended last week with a shooting star reversal candle. If yields slow their roll here then we’ll likely see the DXY start a multi-week pullback.

7. And this will flip a headwind into a tailwind for stocks as a rising USD driven by higher yields, is what has largely been driving this correction in risk assets. 

8.  This chart from SentimenTrader shows the trends in employment for the construction, trucking, and temporary hires relative to their 12 month moving averages. It’s an n of three so take with a grain of salt. But this does correlate well with the main recession leads we track, which all continue to point to a material slowdown beginning around the turn of the year.

9. Utes (XLU) are bombed out. SentimenTrade writes: “When the composite score falls below -35%, the downside momentum in the S&P 500 Utility sector tends to persist over the following week but median returns, win rates, and z-scores show outstanding results across medium and long-term horizons.”

10. Here’s the returns table following past signals, again via SentimenTrader.

11.  Similar to bonds, going long Utes here is fading extreme momentum so positioning sizing and risk management are key. However, if you wanted to play for some short-term reversion, you can take a position will low risk and decent size in the leverage utility etf (UTSL).

12. December Corn is breaking out of a major volatility compression zone. We’re buyers on a move above last week’s highs. Positioning, sentiment, valuation, and seasonals are all supportive of a breakout higher.

Thanks for reading.

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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.

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