Your Monday Dirty Dozen [CHART PACK]

It is poor policy, I find, to wait for Opportunity to knock at your door. I train my ear so that I can hear Opportunity coming down the street long before it reaches my door. When Opportunity knocks, I try to reach out, grab Opportunity by the collar and yank it in.  ~ Richard D. Wyckoff

Good morning!

In this week’s Dirty Dozen [CHART PACK] we look at price targets following new record highs, check out rising global markets, dissect fund flows to see where capital is headed, look at world equity valuations, and see what’s going on in Putin’s Russia, plus more…

  1. Both the S&P 500 and Nasdaq made new all-time weekly highs last week. The technician Peter Brandt (@PeterLBrandt) has a measured move target on the S&P of 3,524. Approximately 15% higher from current levels.

  1. This chart from Callum Thomas (@Callum_Thomas) shows it’s not just US markets that are moving higher. The percentage of countries at least 20% off their 52-week lows is trending up from a very low base.

  1. We’re starting to see a reversal in flows out of bonds and into equities for the first time in a long while (chart via BofAML).

  1. Like a rubber band that has been wound tight, there’s plenty of potential energy to unravel. A process that could spark a flood back into risk assets (chart via BofAML).

  1. The reason behind the lopsided flows is that money managers are bearish… and I mean extremely bearish… Barron’s latest “Big Money Poll” finds that only 27% of fund managers surveyed are bullish on stocks over the next 12-months. That’s the lowest bullish reading in more than 20-years.

  1. Valuations in the US are back near levels that in the past have acted as headwinds for equity market returns. This doesn’t mean we can’t see US multiples expand further (they probably will). But it increases the fragility of the trend.

  1. It also means that investors who now find themselves horribly underinvested and who are looking to dramatically up their exposure to equities may look elsewhere.

  1. The US has long earned its valuation premium over the rest-of-the-world due to its strong trend in earnings. But, BofAML noted in a recent report that this trend may be changing, writing “The US one-month ERR (0.49) has dropped below the global ERR (0.65) which is unusual. Note that in the post-crisis period, the S&P 500 ERR has been above the Global ERR 74% of the time, underscoring the earnings prowess of the S&P 500 relative to other regions due to its secular growth and quality biases. Are the tides shifting? Other signals suggest shifts from the US to other neglected pockets. Our global team notes that the October ratio improved the most in Asia Pac ex-Japan and Emerging Markets, but the ratio fell the most in the US (Europe’s ratio remained unchanged).”

  1. Equity markets have been benefitting from improved financial conditions this year relative to last. One of the few remaining conditions that have been tightening liquidity has been the persistently strong US dollar. But the USD is back below its 200-day moving average and as I noted in last week’s Dozen, we might finally be seeing the turn in King Dollar. A trend that would further boost financial conditions and make underweighted ex.US assets even more attractive.

  1. One of the cheapest markets at the moment is Russia (RSX) which just broke out to new multi-year highs last week.

  1. Remember how a month ago the bears were sharing this chart of the ISM Manufacturing New Export Orders which had just hit new post-crisis lows? Well, it just rebounded in one of its strongest MoM reversals. I wonder why those same people aren’t sharing the chart now?

  1. Finally, one of my favorite leading recession indicators, the Philadelphia Fed Leading State Index, came out with another solid print this last month (when it crosses below the red horizontal line is when you need to worry). Just another sign, amongst many, that a recession is still a ways off.

Related Posts

Subscribe To Our Newsletter

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.