An Accelerating Buy Climax

In this week’s Dirty Dozen [CHART PACK] we look at relative growth dynamics and what it could mean for the US dollar before diving into the latest BofA Bull & Bear signal, some more record flows data, a near-record in the VIX, cheap downside protection that’s on offer, the crypto market cap/sentiment picture before finally ending with a mining company that packs a great technical setup, plus more…

Let’s dive in.

  1. The falling US dollar has been a critical tailwind to risk assets over the last 8 months. So, in effect, being long stocks has a synthetic short USD component to it. We at MO have been sitting quite heavy in long equity positions (though we’re starting to slowly pare that back some). Because of this, we’re looking for ways to gain exposure to at least a temporary shift in market dynamics and I believe the technicals are being laid for a long USD rally to potentially begin sometime in the coming weeks. Diverging relative growth and the “USD Smile” factor support this possibility (chart from Nordea).

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  1. The market is entering an accelerated Buy Climax. This means that near-term outcomes are skewed to the upside over the next couple of weeks as the odds we see rapid price appreciation are quite high. At the same time, this further raises trend fragility and will likely lead to an intermediate top.

BofA’s Bull & Bear Indicator is now up to a 7.7, close to an 8.0 “sell signal”. Its last official sell signal triggered on Jan 30th, 2018. According to BofA, the “median 3m returns from 12 “sell” signal since 2000 = global stocks -9.0%, 10-year Treasury yields -45bp.”

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  1. Last week we saw record inflows into global equities and tech as well as the largest drawdown in cash since 2019 (charts via BofA).

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  1. Longer-term though, the positioning picture is more reflective of early/mid cycle dynamics than it is of late cycle ones.
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Disclaimer: All statements are solely opinions and are for educational purposes only.

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