The Correction in Gold is NOT Over [DIRTY DOZEN]

You are—face it—a bunch of emotions, prejudices, and twitches, and this is all very well as long as you know it. Successful speculators do not necessarily have a complete portrait of themselves, warts and all, in their own minds, but they do have the ability to stop abruptly when their own intuition and what is happening Out There are suddenly out of kilter. ~ Adam Smith, “The Money Game”

Good morning!

In this week’s Dirty Dozen [CHART PACK] we look at qualitative and quantitative sentiment signals, dive into gold’s recent fall and explore what it means. Pour over a key ratio chart that gives a bullish signal, discuss consensus earnings estimates that are still too low. And end with some talk on buybacks, GBP risk-reversals, very exotic data, and pitch a mismanaged beaten down travel stock that just might be about to turn.

Let’s dive in.

***click charts to enlarge***

  1. I have a few qualitative sentiment gauges that I like to routinely check. My three favorite are MarketWatch’s Homepage and Most Read articles banner, Bloomberg’s Real Yields show on Fridays, and CNBC’s Fast Money (just the first and last few minutes of the show).

You can see narrative adoption progress in real-time with these. Take MarketWatch’s Homepage below, for example. The green highlights are bullish article headers and the red bearish. We’re seeing more green (bullish) headlines than just a week or two ago. But… expect this page to be marked in nearly ALL green by the time this rally is good and done. That’s typically how the sentiment cycle swings.


  1. The BofA Bull & Bear Indicator, one of my favorite aggregate sentiment / positioning indicators is still neutral.


  1. I’m of the opinion that we’re probably setting up for a rocky start to 2021. BofA’s Scores on the Doors show record inflows into equities, EM equities, EM debt, 2nd largest-ever inflows into value, 4th largest into small-caps, and their Cash-Rule close to giving a sell signal.

My base case is that we’ll see a fast climb into January causing positioning to catch up to sentiment leading to an eventual unwind starting mid-Jan and lasting a few months. I expect the correction to be more sideways than down unless we see long-end yields spike more than expected.


  1. Gold (GLD) saw its largest daily outflow in over 7-years last week. Gold is working off the technical overextension + crowded positioning that I pointed out back on August 7th (link here). When gold has been this extended in the past (over 25% above its 200dma) it has seen an average correction of 26%, with a minimum 14% and maximum 45% drawdown. It’s currently down approx. 15% from its August peak.

It’s closer to the end than it is to the beginning of this correction. But it likely won’t bottom until it hits its next major support level in the 1,675 -1,750ish range.


  1. I like ratio charts. The good ones are a picture worth more than a thousand words… Equity index vs pet rock (gold) is one of my favorites. It tells you all you need to know about evolving investor psychology, flows, and positioning.

The green areas below mark the start of new bull markets following a bear and recession. This ratio chart is following a path similar to that seen at the start of the last two major bull cycles. Something to chew on if you’re in the camp that thinks stocks can’t or won’t rise much higher…


  1. Big picture breadth charts confirm this cyclical bull take. @stageanalysis tweeted last week “Potential Major Market Breadth signal that the bull market is still only just beginning. The 80%+ level has only been reached twice before in June 2003 & August 2009 as you can see attached. So although in the upper risk range. A major sign of strength.”


  1. Earnings and economic data continue to surprise to the upside. Barclays notes that “the magnitude of the 3Q surprise is especially remarkable if we normalize the surprise by the dispersion of consensus expectations around the mean, which was quite high for 2Q.” You’d think with consecutive positive beats and surprisingly good vaccine news that analysts would have rerated their expectations significantly higher going into Q4, but you’d be wrong.

According to Barclays, they’re still setting a terribly low bar while the bank’s earnings models project Q4 and subsequent quarters will see very strong earnings growth.



  1. Buybacks are a critical input in our Equity Supply and Demand Equation. Buybacks were slashed this year for obvious reasons.


  1. However, that’s likely to change going into next year as US corporates have built up a considerable war chest of cash.


  1. This chart is an amazing example of the explosion in niche data sets and what we can do with them. The below is from @kate_ptrv and shows the trend in customer reviews of scented candles on amazon and mentions — or complaints, rather — of “lack of scent” over the last few years.

We can see that mentions of lack of scent have ebbed and flowed throughout the year, following the rise and fall in COVID cases (a common symptom of COVID is losing one’s sense of smell).

Pretty incredible stuff. And I don’t know about you but seeing stuff like this makes me love our bullish memory/data storage thesis even more… (h/t @Fritz844).


  1. The dollar keeps breaking critical levels as it continues to drop. I don’t expect anything to arrest this fall until we see an intermediate-term top on this move in stocks, which I think is probably around a month or so away. Risk-reversals, which often have a big lead, are already paving the way.


  1. Tripadvisor (TRIP) to me is a lot like Twitter. An amazing product, captive loyal audience, extremely mismanaged.

This company has had endless opportunities and miles of a headstart to fortify its MOAT and monetize its massive user base. Yet, management has done… well, not much. And so the stock has perpetually suffered.

With that said, the company is cheap. It just did a full UI makeover that was an actual improvement. It’s integrated with VRBO and has greatly expanded its revenue mix with an aggressive move into dining and experiences.

COVID will be in the rear-view mirror next year and peeps want to get the hell out of their houses and travel. TRIP will benefit from that and they have plenty of liquidity to keep things going until then.

I don’t have a lot, or rather any confidence in management’s ability to let this golden goose hatch without accidentally chopping off its head. But… maybe they surprise us… and maybe the stock is just so cheap that even they can’t drive it lower… and maybe… well, that’s it.


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.