Your Monday Dirty Dozen [CHART PACK]

Try as one might, when one looks into the future, there is no such thing as ‘complete’ information, much less a ‘complete’ forecast. As a consequence, I have found that the fastest way to an effective forecast is often through a sequence of lousy forecasts.  ~ Paul Saffo

Good morning!

In this week’s Dirty Dozen [CHART PACK] we look at buy climaxes, wild speculation, some strangely muted sentiment, and positioning data, then get into virus growth rates and finish with a Russian tech giant breaking out of a huge base….

***click charts to enlarge***

  1. A LESSON ON THE PUT/CALL RATIO AND WHY IT’S TELLING US THAT TRUMP WILL GET THE CORONAVIRUS :).” ~ Jesse Stine

 

  1. I’ve been highlighting the extreme put/call readings for the last few weeks. But here’s the thing about buy climaxes… They last longer than anyone expects them to. Momentum like that which we’re seeing in the FAMG stocks is a helluva force to try and fade. This weekly log chart of MSFT shows that its parabola is now in the straight vertical climb phase. MSFT has climbed the ranks to become the fourth most popular stock held by retail on the Robinhood app, right behind the cannabis stock ACB, Ford, and GE.

 

  1. Retail speculation is driving a buying frenzy in a number of stocks. The most notable being Tesla (TSLA) which turned over $169bn, that’s billion with a B, in trading the other week (marked by the green line). That’s more than the weekly traded value of MSFT, AMZN, and GOOGL at any time in their history which is saying something since those stocks are 10x the size of TSLA.

 

  1. Bitcoin (BTCUSD) is looking like it wants to join in on the fun. The cryptocurrency just closed above the 10k level which has previously acted as significant resistance (chart below is a monthly). The odds now favor BTC taking out its 19’ highs in the coming months.

 

  1. While we’re definitely seeing pockets of bubbly activity in select stocks and amongst some retail investors, the general sentiment is elevated but less so than it was a couple of weeks ago (chart via Nomura).

 

  1. And if you’re looking at CoT Speculative positioning the numbers are even less impressive. Spec positioning in the SPX remains quite muted while AAII Bulls are back in neutral territory after last week’s di — we should not be surprised if the market rips higher from here…

 

  1. While short-term traders have been quick to pile into bonds (chart via Nomura).

 

  1. No doubt the coronavirus is keeping a lid on the bullish fervor somewhat. Here’s the recent growth rates for the virus via @Trinhnomics. While confirmed cases continue to trend higher, the rate at which it’s growing appears to be slowing.

 

  1. Here’s some Chinese GDP gaming from Nomura given five different scenarios regarding the termination of lockdown measures. From where I’m sitting, the end of February seems a little too on the optimistic side but who knows.

 

  1. I thought this was an interesting set of charts from Credit Suisse. They show the aggregate free cash flow minus buyback/dividend yield of the SPX ex financials. They note that US corporations often go in the hole (deficit spend) in the lead up to recessions. US companies were briefly in deficit last year but are back to being slightly in the green.

 

  1. The NYSE stock only advance/decline line (red) is diverging from the SPX (black). Keep an eye on this. It doesn’t mean a top is coming, it just notes a serious weakening of the trend in breadth which makes the market more susceptible to a larger selloff if it continues.

 

  1. Despite the pockets of crazy in some areas of this market, I’m still finding plenty of opportunities. Take Russian tech giant Yandex (YNDX) for example. It just broke out of the neckline of its 8yr+ inverted H&S. TTM revenues (yellow) and free cash flows (blue) are making new highs and growth is accelerating. The Russian government is about to embark on a multi-year fiscal spending spree. There’s a lot to like here. I’ll be sharing my writeup on the company with Collective members this week.

 

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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.