Whales Are Dumping Megacaps… [Dirty Dozen]

There is a very important difference between being a theoretical contrarian and dealing with it in practical terms. In order to win as a contrarian, you need the right timing and you have to put on a position in the appropriate size. If you do it too small, it’s not meaningful; if you do it too big, you can get wiped out if your timing is slightly off. The process requires courage, commitment, and an understanding of your own psychology. ~ Michael Steinhardt

In this week’s Dirty Dozen [CHART PACK], we highlight persistent bearish spec positioning across US indices — except for the Nasdaq where specs are now dangerously crowded long. We then look at positive real rates, Big Trouble in Brittle China, a breakout in the loonie, and whales dumping their shares in megas, plus more… 

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  1. The market remains short-term overbought. This makes it more susceptible to a pullback/consolidation in the near term. And though the Narrative Pendulum is starting to swing in the other direction, bearish positioning remains a strong persistent tailwind for equities. 

The chart below shows the aggregate US major index net commercial positioning. Commercials are very long, meaning specs are very short. This is a lot of fuel for a continued move higher. 


  1. With that said, not all indices are showing the same level of pessimism. Here’s net commercials on an OI-adjusted basis for the Nasdaq. 

They contrast with the chart above with commercials here being very short (specs very long). The previous two times commercials were this short Qs, the index soon rolled over into an extended volatile patch. 


  1. The US 3m yield (blue line) is now above CPI for the first time since late 19’ (meaning real yields are positive). As CPI continues its trend lower, real rates will continue to rise even as the Fed stays pat, effectively tightening liquidity. 


  1. I’ve been keeping a close eye on metals here, specifically copper. It’s been trading as if a recession is coming around the corner (a real possibility by Q4, imo). Positioning is quite bearish but so far it’s been unable to hold a durable bid. 

China recently cut deposit rates in an effort to stimulate. A strengthening credit impulse has been a big driver of metals in the past (see chart below). We’ll have to see if this correlation continues. 


  1. But there’s a real possibility that China has finally crossed its Minksy moment and has started its 1990s Japan-style decline, which would be a considerable headwind for commodities


  1. Speaking of China, Michael Kao wrote a great post over the weekend sharing his takeaways from a recent geopolitical panel he chaired discussing the threat of a Chinese invasion of Taiwan (link here). 

Peter Zeihan was the keynote and if you’ve read his thoughts on China, then you know he falls squarely into the bear camp on the country, with demographics, debt, and geography being the big reasons why. 


  1. The Canadian dollar has strongly broken out of its 8-month consolidation zone. It’s overbought over the short-term but we’re looking to enter if given an entry on pullback or consolidation near Bollinger midline. 


  1. Positioning and yield spreads are favorable to a continuation of this breakout. Large specs are crowded short while yield spread momentum is moving in CAD’s favor against USD (charts below from our HUD). 


  1. Net block order flow is an indicator that tracks the net trend of large block orders amongst mega-cap stocks. It’s something I occasionally check in on, though it’s not something I’d make a trade decision on alone. But I do think it can be valuable context to see what the whales are doing as divergences with price, both positive and negative, often provide good leads. 

Well, the past few months show one of the largest — and growing — negative divergences I’ve seen amongst the leading mega-cap stocks. Below is GOOG (green line is the stock price and tan is the net block order flow). 


  1. Here’s NVDA and AAPL… 



  1. And MSFT and META… 

Make of this what you will, but it’s interesting nonetheless.



  1. Argentina (ARGT) completed a 5-year inverted H&S continuation pattern earlier this year. And it recently broke out from another multi-month consolidation zone. This is an incredibly bullish tape and one you want to be long. Our largest position (and winner over the past year) is in the Mexican / Argentinian oil and gas play, VIST, which is up 220%+ over the past 12 months.

Thanks for reading.

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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.

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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.

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