The idea that you can’t beat the markets is a frightening prospect. That is why my guiding trading philosophy is playing great defense. If you make a good trade, don’t think it is because you have some uncanny foresight. Always maintain your sense of confidence, but keep it in check. ~ PTJ
This is the first DD of the new year. Hope everyone enjoyed their holidays and a few quiet days away from markets!
The MO portfolio officially closed things out with a +50.4% return on the year. The team and I will be publishing our eoy review soon, where we’ll dive into our painful mistakes and total blunders, as well as the things we’ve learned and what we’ll try to do better in the year ahead. So keep an eye out for that. And if you’d like to join our Collective as we tackle 2025 head on, just click here.
Alright, let’s get to it.
1. The Qs reversed last week off their lower band and are consolidating within a Bull Quiet regime. While the more intermediate backdrop (1-3 months out) is looking increasingly fragile, the short-term backdrop still favors a move to new highs.
2. One of these data points is our weekly Nervous & Numb indicator, which measures the relative moves between the SPX and the VIX. It triggered a buy signal the other week. Buy signals marked in green, sell signals in red.
3. And while things like our aggregate breadth indicator (below chart) continue to show negative divergence, our market internals aggregator, which is more of a shorter-term indicator, remains supportive of the current bull trend (top chart).
4. Last year, the market benefitted from the positive TOY indicator tailwinds, which we covered in Jan 2024 here. Unfortunately, this is not the case for 25’. Wayne Whaley writes:
“Turn of the Year (Toy) Hat Tricks occur once every four years on average when Dec, Jan, and Feb post consecutive positive months. They are a welcome sight for those long equities as the following 12 months (March-February) are 26-0 since 1930 for an average 12m gain of +15.9%.
“Additionally, only one of those 26 Hat Trick signal years (2011) even experienced a -10% drawdown from the end of February while 23 of the 26 cases were up at least +10% at some point in the following year which puts the Hat Trick Signal in the Market Barometer Hall of Fame.
“…Unfortunately for the 2025 Bulls, December 2024 came in at -2.5% which takes the Toy Hat Trick off the table this year.”
5. Our Market Implied Regime indicator shows the market is currently implying a 60% probability of an inbound “Goldilocks Regime”. Goldilocks means ISM of 53 or higher and a CPI of 3% or less.
6. This indicator has a 100% hit rate in predicting goldilock conditions but only when the indicator itself climbs above 90%. So we’ll have to keep an eye on it to see if this spike continues.
7. Crude has broken out from its 3-month compression regime and is now trading around spot $74. A few thoughts about oil here (1) it’s unusual to see oil rise like this, while the USD is also trending up (2) while it’s rare for the two to show a positive correlation, it happens; look at 99’-00’ as example, and (3) there are increasing similarities (though also key differences) between now and the late 90s, and I believe there’s decent odds we see USD rip, as well as commodities in the months ahead.
And, I think it was PTJ who correctly pointed out, that it’s a 100% YoY spike in oil that kills nearly every cyclical bull market in stocks.
8. And that’s because it drives inflation and yields higher. Below is our Energy and Rates Shock indicator showing we’re still a long ways from that point, thankfully.
9. This is one of the most important macro charts going into 25’, in my opinion. It’s a yearly candle chart of the trade weighted US dollar (DXY). It shows DXY decisively broke out from its decade long rectangle in 24’.
We’ve spent the last few years making fun of the degens ranting on about the dAeTH oF thE uS DolLAr as a global reserve currency. It’s exactly that type of based sentiment that sets the stage for monster rallies.
24’ was a BIG breakout year for the USD. We might be in for a big USD bull trend here.
10. The major USD compression regimes we’ve been writing about for months completed in December with big breakouts to the downside in AUDUSD and EURUSD, and a bullish breakout in USDCAD.
This is a chart that you want to be looking for tactical short entries on.
11. Same with EURUSD.
12. The USD has strong seasonality behind it over the next two months.
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Thanks for reading.
