Small-Cap Buy Signals Abound…

“Most of the time when markets move, no one has any idea why. A man who can tell a good story can make a good living as a broker. It was the job of people like me to make up reasons, to spin a plausible yarn. And it’s amazing what people will believe.” ~ Liar’s Poker

Good morning! 

In this week’s Dirty Dozen [CHART PACK] we discuss the short-term buy signals we’re seeing for small-caps, go over the widening cracks in credit, the double-top in bonds, and the relative attractiveness in materials, plus more… 

Let’s dive in. 

***click charts to enlarge*** 

  1. July marked the 6th consecutive monthly bull bar for the SPX. It’s now at the apex of its 16-month rising wedge in the 3rd up-leg of a Buy Climax. Our current base case is we see a pitch over bull trap followed by a 1-3 month reversal/consolidation


  1. Six consecutive monthly bull bars is a rare thing and a sign of strong structural demand pressure. So, while we should see a multi-month pullback soon. That dip (10-20%) will get bought as the bulls still clearly control this market and it doesn’t pay to try and fade this type of momentum. 

Our backtester (this feature is being added this week to our internal dashboard for Collective members) shows there have been 10 similar past occurrences and the average returns are strongly positive on a go forward basis


  1. I shared this chart a few weeks ago and credit spreads have widened further since. Credit sits above equities in the hierarchy of markets which is why it often leads and why this chart is important. 

This is common in the final stages of a buy climax. 


  1. In a similar vein, IG spreads are widening from their tightest levels in history. Remember Minsky’s Law “stability is destabilising” and in markets things can get too good… 


  1. US 10-year bonds have put in a Matryoshka double-top (monthly, weekly, daily).


  1. Maybe we see yields rise and small-caps outperform until the buy climax in equities sputters? 


  1. The McClellan Summation Index is turning up and should give a buy signal for small-caps this week…


  1. And our Nervous & Numb indicator which looks at the technical relationship between the SPX and the VIX put in a 2 sigma bullish signal on Friday, which means we could see the market go on a quick run here…


  1. The materials sector continues to show building internal technical strength and fundamentals. The sector is seeing new 52-week highs climb following a technical correction.


  1. MACD Buy Signals in the sector recently climbed to their highest levels since the COVID bear market low.


  1. And materials have the strongest relative forward EPS trends out of all the sectors. 


  1. We pitched CTVA in these pages a few weeks ago but another play in the Ag arena I’m looking at is Intrepid Potash (IPI). IPI is a small-cap potash maker with a nice technical setup on the weekly and dailies. It has a strong balance sheet, is trading at 7.5x FCF, and has a tiny float.


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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

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.