“Often as the end of a Squeeze nears, price will stage a short fake-out move, and then abruptly turn and surge in the direction of the emerging trend.” ~ John Bollinger via “Bollinger on Bollinger Bands

In this week’s Dirty Dozen [CHART PACK] we look at the short-term buy setup in Qs but caveat that with our first official nervous & numb sell signal since Aug of 23’. We then walk through internals, sentiment, and market returns. And finally, we end with a look at GBPUSD which is in its tightest compression regime in roughly 50 years, plus more… 

1. The Qs are in a 1 ½ month-long sideways range within a Bull Volatile/Quiet blended regime. The index reversed off its lower daily Bollinger Band as well as the lower end of its sideways range on Friday. This gives us a tight inflection point to put on a buy stop and potentially get long with little risk if the market pulls us in. 

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2. However, our Weekly Nervous & Numb indicator (yellow line) triggered its first sell signal since the previous one last seen on August 3rd, 2023 which preceded the two-month correction in the indices. Trend Fragility (green line) is also elevated (around 90).

Neither indicate an immediate top in the market but they do collectively signal heightened risk and downside vulnerability. This means we want to closely watch internals and the rate-of-change in yields to look for increasing bearish pressure on risk assets and respect any failed support levels in the tape.

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3. Our Internals aggregator remains in neutral territory and while we’re seeing some growing negative divergences in the sub-internals (ie, vix curve, QQQ/SPY), it’s not to the point where we should be overly concerned, yet. 

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4. And while our Trend Fragility indicator is elevated, BofA’s Bull & Bear indicator (which offers a longer-term look at positioning/sentiment) remains squarely in neutral territory. 

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5. Here’s the latest market performance heatmap. Commodities and cyclical sectors continued their recent bout of outperformance last week with precious metals, the energy and metals/mining sectors, and industrials taking top spots.  

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6. We’re still long BTCUSD and will be looking to add on a daily close above its recent coiling sideways range (upper white line). Positioning, sentiment, and seasonality all remain favorable. 

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7. The below is a monthly chart of the US dollar trade-weighted index (DXY). The DXY is trading in a tight 16-month sideways range sitting on the upper bound of its previous 7-year sideways range. From a purely technical perspective, this remains a bullish chart with the odds favoring upside follow-through out from its recent compression zone. 

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8. Our sentiment oscillator shows that USD sentiment is in the dumps amongst large and leveraged traders. Previous instances tended to mark major bottoms in the DXY. 

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9. We’re long USDCNH and will be adding should the tape stay constructive, but we’re also keeping a close eye on GBPUSD. GBPUSD’s weekly Bollinger Band width is at its most compressed point since 1977. Major compression regimes lead to major expansion regimes (ie, big trends). 

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10. While compression regimes mean a big breakout is coming, they are directionally agnostic. Here’s a daily chart of GBPUSD. It’s in a 5-month sideways range. 

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11. Our 5-year Large Speculator positioning oscillator shows that large specs recently hit 100% of their 5-year average, meaning specs are very long. Red shaded areas show that past bullish extremes tended to precede or coincide with a top in GPBUSD. 

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12.  In addition, our GBPUSD yield spread differential and ROC oscillator show that yield spread momentum is moving in the USD’s favor, which is bearish GBPUSD all else equal. 

So to summarize, GBPUSD is in a significant compression regime and odds favor a big breakout coming soon. Sentiment, positioning, and macro fundamentals tilt those odds in favor of GBPUSD breaking out to the downside. 

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