There was a long period during which nearly every thinking man was in some sense a rebel. Literature was largely the literature of revolt or of disintegration. Gibbon, Voltaire, Rousseau, Shelley, Byron, Dickens, Stendhal, Samuel Butler, Ibsen, Zola, Flaubert, Shaw, Joyce – in one way or another they are all of them destroyers, wreckers, saboteurs. For two hundred years we had sawed and sawed and sawed at the branch we were sitting on. And in the end, much more suddenly than anyone had forseen, our efforts were rewarded, and down we came. But unfortunately, there had been a little mistake. The thing at the bottom had not been a bed of roses after all, it was a cesspool full of barbed wire. ~ George Orwell (h/t @BrentBeshore)
Good morning!
In this week’s Dirty Dozen [CHART PACK] we look at the neutral range for the SPX along with mixed signaling for both the bulls and bears. We then discuss inflation, value factor, peak supply chain hysterics, and a new bull leg in the loonie, plus more…
***click charts to enlarge***
- I’m seeing mixed signals and expecting neutral-ranging action until either of these levels are broken. Hedge, play both sides and wait for the tape to tips its hand.
- One for the bulls, we now have positive seasonal tailwinds after passing the dip in seasonal weakness on the 9th.
- On the other hand, we have elevated valuations with a Fed that looks to be abandoning FAIT as inflation proves less transient than first hoped.
- If inflation stays elevated then we should expect to see valuations continue to contract (chart via Crestmont Research, h/t @BodhiTreeCIO).
- But as @MacroLukas recently pointed out, we’re probably near peak supply chain hysterics. And normalization on that front will help slow the rise in CPI…
- In the meantime, the value factor should continue to outperform.
- I’m watching cyclical vs defensives here. New relative highs would be a bullish tell for the broader market.
- FANG stocks are trading at their lowest premium to the broader market since the 2018 bear market low (chart via BBG). GOOGL, MSFT, and AAPL have seen nice pullback and reversals at their weekly Bollinger Band midlines.
- The crypto charts look solid and are acting as a lead for the broader market. BTC open interest is finally perking up after trending down for the last year. This is indicative of big money interest returning to BTC, which bodes well for the sustainability of this bull move.
- Semi breadth keeps deteriorating which typically leads to broader risk-off in the market. Let’s see if SOX can hold its 200dma. As I said, lots of mixed signals out there.
- The loony is embarking on another leg up, with some help from higher oil prices. Rate spreads, spread momentum, and positioning are bullish tailwinds for CAD.
- USDCAD (inverse shown below) is technically constructive on both longer and lower timeframes. CADJPY is another one to watch for an entry on a pullback.
Thanks for reading.
Stay safe out there and keep your head on a swivel.
Article by Alex Barrow, Macro Ops
