“I believe in analysis and disciplined trading plans. I believe in studying the greats and following their lead. But most of all, I believe in hard work and perseverance.” ~ Nicolas Darvas
Summary: The primary trend in equities is still up. Personally, we’d love to see another dip to rinse sentiment and positioning further, and some market internals suggest we may get one. But… the weight of the evidence is mixed, and a breakout could come in either direction. We’re still tracking the imminent breakout in commodities, the temporary top in precious metals, and the basing pattern in bonds, plus more…
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1. The primary trend in equities remains bullish. That said, we expect some more chop and vol over the next two weeks. Ideally, we’d see a fresh washout low to clear out positioning and reset sentiment, but the market could just as easily rip from here. Most S&P 500 companies exit the buyback blackout period this week, providing a stabilizing bid, with seasonality typically bottoming around the 27th.
2. The latest bearish narrative is around private credit and regional banks. If we’re going to see a durable breakout in the market, then we’ll want to see it confirmed by a reversal in both.
3. Market internals are giving a mixed signal with semis and high beta confirming the uptrend, but cyclical/defensive, discretionary/staples, and the VIX curve suggesting continued weakness, which gives weight to our neutral/slightly bearish short-term view.
4.We’re still far from seeing the kinds of positioning and sentiment that underlie the conditions for a broader top thoug.
5. But we’d love to see a washout of short-term sentiment/positioning to set things up for the next run higher. It’s a coin flip whether we get one or not, but it would set the stage for a more powerful move if so.
6.Our Trifecta Lens indicator, a composite of liquidity, technicals, positioning, breadth, and macro, is still at neutral levels, which is supportive of the broader trend up.
7. And Aggregate Breadth remains supportive of the broader bull trend.
8. Someone sent me this chart by @BittelJulien showing the significant jump in SPX net 12-month forward EPS upgrades, which bodes well for our “running it hot” thesis.
9. We covered the bullish breakout in Eurostoxx50 a couple of weeks ago (link here), along with the compression regime in EU bank futures. The bank futures are still setting up, and the Eurostoxx50 is consolidating above its previous range, providing a nice spot to buy/add.
10. I’m going to keep pounding the table on this one as commodities are setting up for a monster of a move. Below is a weekly of the BBG Commodity Index. Keep an eye on this. A breakout is coming soon…
11. UST 2yr notes reversed off overhead resistance of their 3yr long H&S base last week. We’ll look to press our bets if we see a confirmed weekly breakout from this range.
12. We added a little to our long silver position last week, which means we’ve almost certainly put in an intermediate-term top in precious metals. Here’s the following from @mark_ungewitter:
“Defining what constitutes unusually high volume is, of course, the tricky part. Today’s secondary surge (over 40 million shares at 1:00 p.m.) is impressive, perhaps comparable to the secondary surge of 03-08-22, marked below with double red lines.”
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Thanks for reading.
Your Macro Operator,
Alex
The time differential index on Bitcoins, which is calculated as the balance of sentiment and bias, has reached the buy zone at -33 percentage points. This suggests that the market could soon trigger a lower turning point.
