- SPX Technicals
- Bonds/Gold: At key inflection points
- Portfolio Update
- STNG and DHT trimmed by half
- Took half profits on Luckin Coffee (LK) — up 45%+ since we entered a few weeks ago
- Added starter positions in Square (SQ) & Grow Generation Corp (GRWG)
Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways — Bob Farrell, Rule Number Four from his 10 Market Rules to Live By.
Winter enrollment for the Macro Ops Collective is now open. This enrollment period will end on January 19th at 11:59PM. If you’re interested in joining our community make sure to sign up by this Sunday! This is the last enrollment till Spring when we’ll be raising our prices by 47%.
I just wanted to drop a note with some short position updates and a few comments on the market.
The SPX continues to climb higher in its micro-bull channel (chart below is a daily), so far shrugging off the increasing number of indicators suggesting this rally has become too dear (see this week’s Dozen for a refresher).
Trend, momentum, and breadth are still on the bull’s side and favor higher prices in the interim. The onus remains on the bears to show us they can gain back control. It’s a wait and see game. With that said, there are a few divergences worth keeping an eye on.
The first is credit spreads (LQD/IEF) shown below in the top-left chart. They peaked over two weeks ago and have been trending lower. This indicator tends to have a long lead on market action. Also, semiconductors (SMH) are beginning to trade a little heavy but not enough so to call a change in trend.
If we take a look at the underlying breadth of the individual sectors we see some interesting developments. Energy and financials are in the bin. The former is not surprising since energy only seems to trade lower these days, but financials (XLF)?
XLF made new all-time highs this past week, just eking out a spike above its 2007 record (chart below is a monthly). Yet, more members of XLF are hitting new 20-day lows than even energy, giving it the worst breadth of the bunch.
XLF’s advance/decline line peaked in early December and has been steadily trending lower ever since (click chart to enlarge).
A number of the big banks have reported earnings over the last few days and for the most part, have beaten expectations. The take from CNBC along with the other financial news outlets seemed very bullish. This is why I was surprised to see that, when checking my charts, many of these names (BAC, JPM, C, GS etc…) were trading down. The chart below is JPM.
I’m not calling a top in the sector, just making an observation. If you’re heavy long banks it may be a good time to lock in some profits.
Another sector I want to point out is Utes (XLU). The bond proxy is trading like a banshee shot out of hell. It’s showing incredibly strong breadth — the best out of all the sectors — and just broke out to new all-time highs (chart below is a daily).
This brings me to bonds (ZB_F, TLT). Utes often lead the way so this week’s breakout should be taken as a positive sign for bonds, which have held up strong in the face of the incessant rally in equities — I covered the bullish bond and gold thesis in last week’s Dozen.
So now I’d say the odds are in favor of us seeing a bullish breakout from its current descending wedge pattern. Right now we have a 100% long position in bonds but I’ll look to leverage that up to 200% should it break above, preferably on the back of stock market weakness. But… if we see bonds reverse and close back below the 200-day moving average (blue line), then I’ll lower the position back to our Core 25% passive allocation.
We cut our positions in our two shipping holdings (STNG and DHT) in half. Nothing has changed to the bullish fundamental outlook but the market has run hard and fast over the last few months and it could benefit from an extended breather over the next few weeks as we head into earnings. We’ll look to add back to these names on further weakness.
We also took half profits on our long position in the Chinese coffee retailer, Luckin Coffee (LK). The stock jumped roughly 50% since we bought in just a few weeks ago, so now seems like a prudent time to take some chips off the table.
You can find my working notes on the company in the Comm Center along with some good on the ground commentary from fellow Collective member, Yang. Just look inside the “Equities” channel for the discussion.
I like LK’s long-term growth prospects and plan to add back to our position; hopefully at lower prices.
We also put on two new starter positions. The first one is in a small-cap agricultural retailer, Grow Generation Corp. (GRWG). And the second is in the tech company, Square (SQ).
I’ll be putting out a longer write-up on both, but let me give you the quick skinny on what I like about these names.
Grow Generation (GRWG) is a fast-growing hydroponic and organic gardening retailer. Yes, it’s a weed play… But unlike the crowded market of branded weed companies that are burning money like it’s 4/20 24/7. GRWG actually has a defensible business, economies of scale, a rock-star management team, and it already produces positive EBITDA.
The chart is a total beaut… GRWG is breaking out of a 7-month long coiling wedge on strong volume (chart below is a weekly).
The company grew its top-line in the high triple digits last year and is selling for under 3x sales.
The weed ETF (MJ) is rebounding off its bottom following a disastrous year in 2019 where it lost over 60% of its value.
I’ve still got more digging to do but at first glance, GRWG looks like it has multi-bagger — or dare I say, dime bag’er… potential? Okay… I know, I know, I’ll show myself out…
Symbol: Grow Generation (GRWG)
Size: 100 bps
Risk Point: $4.20
The second company needs no introduction. Square (SQ) has been out of the limelight for the last 18-months as its stock has gone nowhere but sideways. Meanwhile, the long-term fundamental outlook for the company has continued to improve (chart below is a weekly).
Why do I like this stock?
There’s a few reasons… (1) I think Square’s CEO, Jack Dorsey, is the most underrated and impressive CEO in tech (2) the other day I was on google maps looking up the number to my barber when I noticed that you can now book appointments directly in g-maps — as long as the retailer has Square tech. It took less than 2 seconds. For someone who loves small efficiency gains, this was like having another Christmas. I can’t help but think this will be huge for the company and (3) this company has created an amazing number of products now and is uniquely positioned to dominate the PoS relationship with retailers going forward + its Cash App is grossly underappreciated. Did you know it did $159m in revenues last quarter (exl. Bitcoin) which makes for 115% YoY growth? The Cash Card is an incredibly positive skewed wild-card that I don’t so much mind having thrown in with the rest of the business.
Like GRWG, I still have some digging to do. But the technicals look great. It looks like it’s itching to break out, so I went ahead and put this starter position on while I do my due diligence.
Symbol: Square (SQ)
Size: 100 bps
Risk Point: $65.00
I’ll be back at the end of the week with more updates.
If you’ve got any questions, just hit me up in the Comm Center.
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Co-Founder of Macro Ops, Global Macro Fanatic, Former U.S. Marine Scout Sniper & Intelligence Professional