The Beginning of a Correction?

In this world, where the game is played with loaded dice, a man must have a temper of iron, with armor proof to the blows of fate, and weapons to make his way against men. Life is one long battle; we have to fight at every step; and Voltaire very rightly says that if we succeed, it is at the point of the sword, and that we die with the weapon in our hand. ~ Arthur Schopenhauer, Counsels and Maxims, 1851

Good morning! 

In this week’s Dirty Dozen [CHART PACK] we look at the monthly charts for SPX and silver, dig into the historical momentum tendencies and positioning of the latter, before taking a look at some USD pairs, crude, an engine maker, and a small potash producer ready to rip, plus more…

***click charts to enlarge*** 

  1. September formed an outside bear bar with the SPX closing on its lows. This comes after seven consecutive monthly bull bars, marking an extreme buy climax. There have only been six other instances in the SPX’s history. The strong buying pressure tends to lead to a continuation of the bull trend in the year ahead following a brief 1-3 month correction on average.  


  1. Silver put in another bearish print last month, closing right at the low of its year-long sideways range. 


  1. This marks its fourth consecutive monthly bear bar. Past instances show that forward returns show a strong downside bias in the following months.


  1. Also, spec positioning remains somewhat elevated relative to the weak price action. And silver is in its weakest seasonal month of the year.


  1. According to Rabobank, the current rise in European gas prices is a much bigger price shock than the energy shock experienced in the 70s.


  1. EURUSD closed below its 12-month sideways range last month. 80% of breakouts from trading ranges fail, so we’ll have to see if this one holds. But as of now, momentum clearly favors further downside follow-through.


  1. BCA Research is looking for a rise in USDCNY, writing “The widening of the China-US yield differential in the second half of last year coincided with a sharp appreciation in the CNY vis-à-vis the USD. However, this differential has since narrowed. The policy outlook is shifting: The Fed is moving towards normalizing monetary policy, while Chinese authorities are likely to ease in response to domestic concerns. Meanwhile, USD/CNY is broadly unchanged near where it stood at the start of the year… Our China Investment strategists expect the PBoC to favor a weaker currency.”


  1. @RenMacLLC pointed out last week that commercials are very short $DXY, noting that “historically, it’s a good contrarian signal and suggests continued $ strength.”


  1. We’re long-term oil bulls but it should be kept in mind that oil is entering its weakest period of seasonality over the following 2-months.


  1. And its time spread has started to diverge lower… So just a heads up for potential coming weakness, especially if we see USD pick up to the upside here. Any pullback should be viewed as an opportunity to buy/add to long positions.


  1. Rolls Royce is involved in a multi-year turnaround effort, guided by new management who’s making some good moves. These changes are starting to payout with the company’s recent big surprise win of the USAF’s contract to supply engines for its aging fleet of B-52 bombers. I like this stock as a play on a return to normal as well as the optionality it gives with its work in nuclear SMR technology. The stock just completed an 18-month inverted H&S bottom.


  1. Intrepid Potash (IPI) is a $500mn market cap, tiny float (8mn shares), potash producer with water royalty rights that benefits from a recovery in fracking. It trades for 7x FCF with growing revenues and net cash on its balance sheet. Its larger rival Mosaic (MOS) closed at 6-year highs last week. I expect IPI to soon follow…


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.

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