Record Highs In The Nikkei…  [Dirty Dozen]

“We are great believers in the idea of having audacious goals, breaking out and doing something out of the ordinary… It’s helped us turn what most people consider a mere profession into a vocation and, beyond that, an art, where we frequently put ourselves in harm’s way.” ~ The Chandler Brothers (the greatest investors you’ve never heard of).

In this week’s Dirty Dozen [CHART PACK] we walk through the market’s trifecta and argue that the weight of the evidence still favors the bulls. We then look at the new all-time highs in Japan’s Nikkei, a long DAX trade, and a coming opportunity to add to our long BTCUSD position, plus more…

1. The Qs are trading in a short-term volatile sideways range within a broader uptrend. They’re now in a Bull Volatile SQN regime. This regime tends to coincide with tops, though markets can continue higher in BullVs for some time before a top occurs.

2. Market internals for the most part remain supportive of the primary uptrend. But, the negative divergences in QQQ/SPY and VIX 3m/1m that we pointed out last week need to be watched as this type of action tends to precede selloffs — though any selloff is likely to be shortlived until we see broader weakness across the internals.

3. Sentiment is bullish but not consensus enough for a top call.

4. Long Nikkei is our largest position and has been our best-performing trade year-to-date. We pitched this trade back in early Dec 23’ (link here).

5. It’s overbought at roughly +3.5std above its 200dma and +2std above both its 50 and 20dmas. But overbought conditions aren’t a great contrarian signal as overbought markets tend to become more overbought. So they’re often more a sign of accelerating momentum than a precursor to mean reversion. The opposite is true in oversold markets which do tend to precede reversion to the mean.

Speculators remain quite bearish considering the price action and while seasonality is poor over the next 2-3 weeks, it turns strongly positive on March 19th.

6. Last month we highlighted the Nikkei’s Breadth Thrust with 70% of the stocks on the making 4 week-highs. This particular signal has a mean return of 11% and sees positive 12m forward returns 77% of the time.

7. The Nikkei just made its first new all-time high in 34 years. And new all-time highs tend to cluster, meaning new all-time highs are followed by more new all-time highs.

8. This record high is also coinciding with a new 52-week high in price.

9. And whenever we see new all-time highs and 52-week highs occur simultaneously, the Nikkei’s mean return a year later is 25% and 100% of the time is positive.

10. The German DAX broke out of its sideways trading range this past week.

11. BofA thinks that “producer” indices such as the DAX should perform well since they expect ISM to begin inflecting higher in the months ahead. They write:

“US consumer strong past 12-18 months, global producer weak…see contrast between payroll & ISM (Chart 6); roles set to reverse in coming quarters…global PMIs tentatively indicate inflection higher as orders now outstripping inventories (Chart 7), while consumer tailwinds of excess savings extinguished, falling saving rate (now <4%), rising delinquencies (albeit low) & hiring slowing; all cyclical assets now trading inflection point in ISM; based on historical relationship to ISM and current valuations, best trades for “long producer, short consumer” in ’24 are commodities, mercantilist stock indices (KOSPI/OMX/DAX) & EM ex-China, cyclical assets not yet trading ISM jump to 55-60.”

12. We pitched the long BTCUSD trade in these pages early last November (link here). It’s now consolidating in a tight sideways compression and we should see a bullish breakout soon. We’ll be adding to our long on a daily close above this range (note: we’re long through the leveraged ETF BITX).

 It’s also nice to see that speculators continue to sell into this rally.

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.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.