Small-caps Catch Up… [Dirty Dozen]

Looking at portfolios, think deeply about process over outcome. If you do something the right way enough times, you’ll win. ~ Dan Loeb

In this week’s Dirty Dozen [CHART PACK], we talk about stubborn bears, further upside in risk assets, make the case for a small-caps catch up play, cover one sided positioning in bonds, pitch a homebuilder supply stock and a long ETHUSD trade, plus more…

  1. “Global liquidity bullish… but set to collapse > $1trn next 3-4 months… the Q3 bear story, especially if Fed hikes resume” via BofA. 


  1. Market sentiment remains stubbornly bearish, despite the positive technicals. This continues to be a strong tailwind for risk assets (chart via BofA). 


  1. Our high-yield spread rate of change indicator just flipped below zero for the frist time since early 22, meaning spreads are tightening which is a positive. Vertical green lines mark past instances showing this typically leads to strong forward equity returns.


  1. Last week we pointed out the short-term overextension signals in the Qs, making the point that it’s a good idea to tighten up stops on tech longs. This week we’re getting long small-caps which look set to play some catch up to the rest of the market. 

The below chart is a monthly showing the RTY has been trading in a 12-month rectangle.


  1. The daily chart shows RTY broke out Friday from a 10-week rectangle at the bottom end of its larger monthly pattern. 


  1. Speculators are very short the entire curve. I don’t see a trade here yet as the technicals still favor downside but worth keeping an eye on bonds.


  1. “Aggregate corporate porits have reportedly fallen almost 14% from their peak in the second quarter of last year, adn the outlook is for more to come. The economic expansion is sputtering, time is working against financial stability, and recent yield increases — and, potentially, further Fed hiking — can only aggravate the situation” via Jerome Levy Forecasting Center.


  1. And while financial stress remains low for the most part at the moment, there are some growing signs that this is set to change in the latter half of the year. Chart from the NY Fed’s latest Household Credit report.


  1. We pointed out the bullish setup in NTDOY back in April when the stock saw a bear trap reversal at its lower monthly Bollinger Band, a level which has worked as major support in the past. The trade continues to setup nicely and looks ready to run.


  1. Bluelinx Holings (BXC), a homebuilder supplies company, is coiled in a 18-month compression regime. Compression regimes tend to lead to large trends. Watch this one for a breakout soon. Chart is a monthly.


  1. Sentix’s TD Index (a composite measure of sentiment) triggered a buy signal recently.


  1. We like the ETHUSD chart over BTC. It’s in a Bull Quiet regime and is coiling in a tight pennant. You can put a buy stop right above this range and let the market pull you in. 

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.