The “No Sense” Algorithm

My buddy Chris D. likes to point out that a characteristic of a “Bull Quiet” regime is when the best sell setups fail time after time. That’s what we’re seeing now.  The market is frustrating the bears by buying every dip grinding the market higher in its micro-bull channel with the 3,000 level and 200-day moving average acting as attractors.

Bearish sentiment is providing plenty of fuel for the move. The AAII Bull-Bear spread rarely gets as low as it is now. It’s tough for markets to top when sentiment is this dour.

 

Credit has not been confirming the move in stocks. But… while credit leads equities, the lead time can persist for quite a while before a convergence. So while this is something we need to keep an eye on it’s not an immediate sell signal.

@bennpeifert shared this extraordinary chart of DARTs for the largest retail brokerages (DARTs stands for Daily Average Revenue Trades). Apparently, retail investors have been stepping into the breach to buy the market en masse, at record-breaking rates. Maybe that’s where everyone is putting their $1,200 stimulus checks? I think probably so…

Silver is breaking out of a month-long wedge and positioning is favorable to a move higher.

The gold vs. silver ratio recently hit its highest level in history. Perhaps it’s time for the less barbarous relic to play catch up?

There’s also some interesting action going on in some dollar pairs, many of which have been coiling tightly over the last few months.

Check out this chart of the Mexican peso (MXNUSD). I love the fundamentals of this trade long-term. Whether or not this is the start of that LT trade is anybody’s guess but it does look like it’s going to at least see a short-term pop. Relative equity momentum also recently moved in the peso’s favor, which is what you want to see if you’re buying here, which I am.

EURUSD is showing similar action… The chart looks to me like it wants to break higher.

That’s all I’ve got for now. Let’s see how the week ends. Oh, and lastly, if this market has you scratching your head. Give these wise words from Adam Robinson a read.

When someone says, “It makes no sense that…” really what they’re saying is this: “I have a dozen logical reasons why gold should be going higher but it keeps going lower, therefore that makes no sense.” But really, what makes no sense is their model of the world, right? So I know when that happens, that there’s some other very powerful reason why gold keeps going lower that trumps all the “logical reasons.”

…Things that don’t make sense are an Algorithm for finding opportunities. Where do we find good ideas? Look where no one looks. When thing’s don’t make sense, get into the trade.

Things that make sense are often already discounted in the price. The things that make you go hmmm… aren’t, which is why the “no sense” algorithm is quite powerful. Markets are funny like that.

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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.

AK

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.