The Bears Are Coming Out Of Hibernation…  [DIRTY DOZEN]

 “Comm. Corp. taught me to see the signal, like the signal, follow the signal. If you follow your system /methodology then over time your edge will kick in and you’ll end up ahead. ~ Micheal Marcus

Good morning!  

In this week’s Dirty Dozen [CHART PACK]  we look at the narrative pendulum swinging closer and closer to a bearish consensus. We follow that up with reasons to expect further downside over the short-term. Chat rising bear market risk, TSM topping, ETHUSD dropping, and natty ripping, plus more… 

  1. AAII Net Bulls-Bears fell to its lowest level since early 13’. Investor’s Intelligence Net Bulls-Bears dropped to its lowest level since the COVID bear market low (II charts via Ed Yardeni)


  1. Here are the forward returns for when AAII Bull readings have been this poor: 3-month average +5.55%, 6-month average +12.2%, with win rates of 94% and 97% respectively. Chart from SentimenTrader via @SethCL who’s a good follow on the twitters.  


  1. Here’s the latest Flow Show and BofA Fund Manager Survey summaries. The bearishness is nearing a consensus… Keep an eye on this Narrative Pendulum. I suspect we have one more washout leg lower that sets markets up for a run back near Jan highs. This is a big sideways volatile regime after all. 


  1. Here’s some great charts from NDR technician @edclissold. Ed wrote: “2 types of indicators have turned negative. 1st are economically sensitive areas. Transports have been a good “real-time economic indicator” for stocks vs bonds, and they’ve gotten crushed (they’re bouncing today).”


  1. And another from @edclissold: “Rate-sensitive areas are underperforming. Homebuilders, autos (less so), and Brokers have rolled over (like Transports, some are bouncing today but in the context of relative strength downtrends).”


  1. And last one from @edclissold: “The SHUT Index (Staples, Health Care, Utilities, and Telecom) measures defensive leadership. It’s rebounded and is testing its Mar 2022 high relative to the SPX. Defensive leadership + rising rates + economic slowing is not a recipe for a major up leg.”


  1. And a little more bearish technical porn for you ZH readers out there. High Beta vs Low Beta Stocks (green) continues to roll over signaling more downside for the broader market. 


  1. I pointed this one out back in early March so just updating it again as TSM looks to be breaking down from its consolidation zone right below its major double top range. The semi-behemoth came out with better-than-expected earnings last week and the stock traded down. Not a good sign if you’re long. 


  1. Citi’s Bear Market Checklist is getting closer to triggering a “Bear Market Warning”. They “become concerned when amber + red signals surpass 50%. This tends to proceed bear markets.” The current reading is 45% and the data is trending in the wrong direction. 


  1. ETHUSD broke down from its recent coiling wedge. Think we see it trade back down to its 2,500ish level over the next couple of weeks. 


  1. Here’s a terrific chart from my bud @tom_morganKCP. Also, make sure to sign up for his weekly (link here). It’s one of my favorite regular reads.


  1. I’ve been getting asked quite a bit what my price target is for natty, since we’re sitting on what’s grown into a large position. Well, the short answer is I don’t really have one. I mean, do I think the previous high of 13.50’ish is possible (red line)? Sure… 

That’s maybe not probable but it’s definitely possible. Regardless, I prefer to trade the chart in front of me. Right now we’re trailing a close stop for partial profits. The rest we’ll continue to let ride until the market says the trend is over.

Thanks for reading.

Stay frosty 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.