“All of us began as research people. And we have a saying, the micro drives the macro. And we never thought we were better at constructing what our nonfarm payrolls is going to be, is core PCE going to round up, or round down… We spoke to a lot of companies in the real economy, observed what was going on, and then constructed a mental model of the macro environment. ” ~ Scott Bessent
In this week’s Dirty Dozen [CHART PACK] we talk about a likely bottom in risk assets, along with a potential bottom in bonds, followed by an even more intriguing bottom in natural gas, plus more…
1. We saw a good-sized bullish reversal bar last week. I’d like to see a weekly close above the 18,350 level for confirmation but it’s odds on now that this pullback is over.
2. Last week gave us the potential double bottom that we were looking for (chart is a daily). We’ll likely see a rip to new highs soon, as long as bonds continue to cooperate.
3. The bond chart is looking increasingly bullish to me (chart below is a monthly). The 10yr is down at its lower monthly Bollinger Band, putting in a potential double bottom. The narrative pendulum has swung completely to the side of the hawkish consensus. So it’s not going to take much of a shift in the data to send this chart ripping (at least temporarily) in the other direction.
4. They reversed off their lower weekly Bollinger Band last week as well. This chart looks set up for some mean reversion.
5. Our aggregate market internals charts is shifting up from its neutral reading which is a good sign for the bulls.
6. Here’s last week’s returns and regimes. One notable market is natural gas where price is starting to perk up some after a brutal year.
7. Natty’s futures curve is at levels which have tended to mark or precede major bottoms.
8. It’s also trading in the 0th percentile historically, which is a precondition for a major bottom to form.
9. Positioning and sentiment have been completely washed out. Seasonality is favorable. And price is coming off of deeply long-term oversold levels.
10. The July contract is in a major squeeze and major squeezes often lead to major trends (chart is a daily). We’re putting in buy stops to see if the market can pull us in long.
11. I shared Antero Resources (AR) in the pages just a few weeks ago. It’s since broken out from its 18-month sideways range. We may play this name through DOTMs.
12. On an unrelated note, I was flipping through some charts over the weekend and came across Total Known Gold ETF holdings (orange line). In the past, this line tends to essentially track the price of gold. But we can see that this relationship has not held up this time around.
I think this says a few things (1) this rally in precious metals has been driven almost entirely by foreign central banks derisking some of their USD exposure due to concerns around future potential sanctioning (they’ve watched what’s happened to Russia following their invasion of Ukraine).
And the gold market is a tiny fraction of the total USD market, so just a little bit of this action can drive a big move. This is why we’ve seen traditional correlations breakdown, such as gold and real yields. And (2) this shows that we’re far from any euphoria or anything that would indicate a major top to this move, quite the opposite. The lack of gold buying through ETFs shows your average investor is still largely uninterested in the yellow metal. This is bullish PMs, which we continue to be very long.
Thanks for reading.
