Nearing A Major Buy Signal… [Dirty Dozen]
“You may not be able to control the markets, but you can control your perception of them in order to achieve a higher degree of objectivity, resulting in a higher degree of shared reality with the markets.” ~ Mark Douglas
In this week’s Dirty Dozen [CHART PACK] we look at a Trifecta Lens buy signal that is inches from triggering. We then cover the market internals picture, seasonality, global liquidity, a short USD and a long gold trade, plus more…
1. Our Trifecta Lens indicator, a composite of macro, technical, and sentiment/positioning intermediate data points, has fallen to 11%. A buy signal is triggered when this dips below 10%. See green highlights for past sections.
2. Broadly speaking, the internals picture is a mess and will take some time to rebuild itself. However, the most important internal (LQD/IEF) has rallied back to its pre-selloff levels. This makes me more open to increasing my beta risk.
3. Speaking on the larger damage though, Renmac shared this chart of High vs Low Beta, writing:
High beta vs. Low beta has rolled over, and is now in a downtrend. In bull markets, there is no consistency among sector leadership (it's not always tech), but it's almost always high beta.
That is now working against you. $SPX
I agree.
4. We’re moving into one of the weakest seasonality periods for the S&P (chart via @TimmerFidelity).
5. My base case is for broader sideways chop with upside potential over the short term. Ultimately the market’s direction and RoC will depend on what the Fed chooses to do at their Sep meeting. Do they go 25bps or 50bps?
6. BBG’s Simon White notes that Global Excess Liquidity (blue line pushed forward 6m) remains supportive of risk assets.
7. And BofA’s Bull & Bear is at a neutral 6.1.
8. We’ve been highlighting the major ongoing compression regime in CADUSD for months as well as a handful of other USD pairs. This chart is a weekly. The shaded area looks like a firm floor on the pair.
9. Positioning and sentiment remain crowded short and its yield spread oscillator is turning north. We’ll be getting long this week.
10. Most wouldn’t know it but gold is the top-performing asset year-to-date.
11. BBG points out that “Gold is outperforming the AI-fueled S&P 500 on a year-to-date, one-, two- and three-year basis to Aug. 15, which may portend macroeconomic headwinds for most risk assets. Our graphic shows the upward trajectory of the metal vs. the S&P 500 (SPX) total return from a base of 100 in 1999, and the plunge from the 2011 peak around 700. At about 140 now, and roughly matching the performance of beta since 2018, a key factor that has a history of boosting gold/SPX is when the Federal Reserve shifts to easing after an elongated tightening cycle.”
12. We’ve been very long PMs all year, through both futures and miners. We’re putting in a buy stop above Friday’s high to see if the market can pull us in to add some more to our position.
My bet is that gold’s bull run is only getting started…
Thanks for reading.
