Oil At Short-Term Bottom

“The most powerful word in the markets is “despite.” If you hear or see a comment like, “Despite the increase in oil inventories being much higher than expected, oil prices closed higher,” that is the tape telling you what is going to happen. Everyone saw inventories were much higher than expected. Why did the market close up? The tape knows more than anyone else” ~ Jason Shapiro in Schwager’s Unknown Market Wizards

Good morning! 

In this week’s Dirty Dozen [CHART PACK] we look at the state of the Hang Seng, global market regimes, creeping weakness in small-caps, and trend exhaustion in large ones, then finish with a look at short-term oversold conditions in oil, plus more…

Let’s dive in. 

***click charts to enlarge*** 

  1. I like to look at our global market regime dashboard every few weeks. It’s a quick way to get a feel for where the action is and isn’t. Each country, market, and asset is grouped by its market regime SQN reading. The countries with the weakest tapes are those with close ties to China.


  1. Speaking of, the Hang Seng Tech Index has fallen nearly 50% from its highs earlier this year.


  1. Hang Seng’s book value per share is in a steady uptrend while the price has gone sideways for nearly four years.


  1. But as the Country Valuation page from our dashboard shows, Hong Kong still isn’t super cheap on a relative or historic basis. And our technical indicators don’t yet show the type of selling exhaustion that marks a major bottom. 


  1. Small caps (RTY) are knocking on the lower bound of their 7-month range while breadth keeps deteriorating.


  1. Total new 52-week lows of all US stocks are starting to spike for the first time since the March COVID lows. Another sign of growing trend exhaustion.


  1. The percent of fund managers expecting a stronger economy has rolled from all-time highs, while the percentage of those overweight equities looks like it’ll soon follow suit…


  1. Large spec positioning in the SPX remains elevated in the 83rd %tile as it enters one of its weakest periods of seasonality.


  1. The Energy Sector saw a MACD Buy Signal trigger last week. This may be good enough for at least a short-term bounce.


  1. Looking at WTI crude itself, we see a similar picture suggesting crude is at a short-term low. The below backtest shows that its 10-day forward returns have a strong positive bias following six consecutive bear bars while in a neutral regime.


  1. Looking out longer-term, the energy sector has one of the better forward relative EPS trends of any of the sectors.

  1. On a totally unrelated note, here’s the breakdown of the total cost of the 20-year US war on terror. $5.4trn dollars spent… and yet we’ve been unable to pass a much-needed sizable infrastructure bill for decades now. The graph is from Adam Tooze’s Chartbook substack, a favorite weekly read of mine. Here’s his summary from that piece (link here). 

“The tragedy is not that the War on Terror crowded out better projects. The tragedy is that the better projects were never on the agenda of power at all. The tragedy is that the one thing that those with power and influence could agree on was war-fighting. In a profoundly divided polity, with deep divisions extending into the elite itself, national security is the one area where a degree of bipartisan agreement was still possible.

“Other than making good the damage done by the frailty of the financial system, the War on Terror was by far and away the largest collective undertaking of the United States elite in the last twenty years. That is what the numbers so carefully compiled by the left critics of the war show. It is indictment enough.”

Well put Adam…


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. 

Thanks for reading.

Stay safe out there and keep your head on a swivel.

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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

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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.

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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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