Will The Bulls Show?

The essence of risk management lies in maximizing the areas where we have some control over the outcome while minimizing the areas where we have absolutely no control over the outcome and the linkage between effect and cause is hidden from us. ~ Petere L. Bernstein, “Against The Gods”

Good morning!  

In this week’s Dirty Dozen [CHART PACK] we look at short-term oversold conditions in the SPX and what that means on a walk forward basis. We then look at troubling credit technicals, some COVID charts, historical divergences in Europe, rate hike pricing, a call for 150/bbl oil, and a LatAm E&P, plus more… 

***click charts to enlarge*** 

  1. The market hit extreme short-term oversold levels last Friday. It’s in a Bull Quiet regime and therefore the onus remains on the bears to prove that this dip won’t get bought. 


  1. Here’s the three week forward returns for every past instance over the last 20-years. The market shows a strong bullish bias (as expected). This is doubly true when you add the filter of a Bull Quiet SQN regime. 


  1. But, as I’ve been writing for the last two weeks. Trend Fragility is extremely high at the moment. This means anything can happen… so, we need to stay on our toes and wait for price to tell us what’s what. 

The RoC in BAA Yields is one of the many inputs that’s adding to this increased trend fragility. It’s risen to levels that have coincided with extended periods of market volatility. 


  1. I wrote last Monday how the COVID winter wave narrative was about to hit fragile markets. That happened sooner than expected with the recent concerns over the new Omnicron strain. It’s still too early to speculate on what impact the new strain will have but regardless it looks like we’re starting another substantial winter wave. 


  1. Trevor Bedford, a mathematical epidemiologist posted this thread on twitter the other day where he lay’s out some of the unique characteristics of Omnicron versus the other variants. The below chart shows the substantially higher number of mutations to the S1 domain of the spike protein versus the other known strains. If you don’t understand what any of that means, you’re not alone… 


  1. I’ve shared versions of this chart over the last few months. Nonetheless, the extreme in US relative equity performance continues… Not sure how much longer this can continue but something to keep in mind because when this core vs periphery cycle flips, it’s going to have massive implications for the US dollar and everything else. 


  1. Over the weekend I started seeing a narrative begin to become popularized essentially saying that this winter wave and the Omnicron news were bullish markets as it would turn the Fed more dovish. Call me skeptical but I think that ship has sailed. 

The Fed is now concerned about inflation not being so transitory. This raises the hurdle considerably for a switch back to more dovish intents. Going to take a lot more pain for that to happen.  


  1. Here’s the latest dots, market, and economist projections for rates, via Nomura. 


  1. The USDMXN has completed a rare compound fulcrum bottom. The measured move target on this one is 23.580. The chart below is a weekly. We are long.


  1. Convexity Vortex shared this snapshot from Kolanovic and team calling for $150/bbl on the horizon, which I think is plausible considering the supply/demand backdrop.


  1. He also shared this great chart showing the breakdown in rig count between public and private players. We can clearly see the impact of ESG and the public market’s unwillingness to invest in production. Probably a good time to fund a private player in the Permian… 


  1. I pitched this LatAm E&P back in May. The stock has gone on a nice run of 125%+ since but it’s still very early days for this name. If you’re looking for entry points, this week is a nice setup for a low risk entry with a stop not too far below Friday’s low. 


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.