The Yen is Done Yawning…

“It might seem that if you have an edge, the way to maximize the edge is to trade as big as you can. But that’s not the case, because of risk. As a professional gambler or as a trader, you are constantly walking the line between maximizing edge and minimizing your risk of tapping out.” ~ John Bender

Good morning! 

In this week’s Dirty Dozen [CHART PACK] we look at short-term shakeout risk, bear market indicators, GDP growth trends, breakout failures, Japan and the yen, plus more… 

Let’s dive in. 

***click charts to enlarge*** 

  1. Compression regimes lead to expansionary regimes. And the DJIA is coming out of a tight squeeze, with its Bollinger Bandwidth below the 5th percentile.


  1. And this squeeze resolved last week with a breakout to the downside and a close on its lows…


  1. Friday marked the 5th straight bear bar. Our Backtester shows that similar occurrences while in a Neutral market regime, show a bias to the downside over the following 10 trading days.


  1. There are some other signs of weakness worth noting. The lack of follow-through from the breakout in Transports isn’t a great look either. A move to new recent lows would be concerning.


  1. And of course it’s mid-September which tends to be the weakest part of the year from a seasonality perspective.

This isn’t to say we’re turning bearish. The SPX and Qs are still in a firm uptrend but we could very well see a shakeout this week or next.


  1. Been seeing variations of this indicator going around, ringing the alarm bells on the increasing risk of a bear market. The below MO Bear Market Risk indicator measures the z-scores of HF positioning, credit market technicals, bond flows, CPI, and consumer sentiment.


  1. But the above indicator fails to account for the shift in Fed policy and the recent shocks caused by the Delta variant and supply chain issues. While we’re certainly due for a period of higher volatility at some point, growth is still strong and should stay so. And the longer-term trend is still up.


  1. Just looking at the SPX and NDX doesn’t tell you the full picture of what’s gone on in the broader market over the last few months. Over 55% of small-caps have dropped by more than 20%, and 72% by more than 15%.


  1. We noted the strong breakout in the Nikkei recently. This move was supported by a major breadth thrust, which historically leads to extended follow-through (h/t SentimenTrader).


  1. From a valuation perspective, Japan trades at about the middle / lower middle of the pack relative to others and its own historical multiple.



  1. Speaking of Japan, the yen is showing signs of extreme compression, with both its BB width and ATR below the 5th percentile.


  1. A compression zone is directionally agnostic. It just raises the odds that a large move is around the corner. 

Looking at our FX dashboard, we can see that recent yield spread trends and positioning (both short and long-term) tip the odds in favor of a bullish move for the yen (USDJPY down). Need to wait and see how the tape develops but keep an eye on this one.


If you enjoy reading these Dirty Dozens each week then please feel free to share them on the Twitters, forward them to a friend, or translate them via smoke signal, etc… Every bit helps us get our name out there. 

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.

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.