Don’t get in a shootout if you’ve left your guns at home. The markets are no place to be trying to impress people. The only way to impress anybody is to stay on your toes, be consistent, and trade within your means. ~ Marty Schwartz
Q3 2021 hedge fund letters, conferences and more
Good morning!
In this week’s Dirty Dozen [CHART PACK] we go through some of the schizo market and econ data. Check-in on improving technicals in China, a leading indicator pointing to much lower yields, a coiling Berkshire, broad-based inflation, record high index concentration, deteriorating breadth, and a Wall Street Bets short, plus more.
- Our leading yield indicator (red line) continues to trend lower widening the already large divergence with the UST 10yr yield.
2. China A-Share’s (ASHR) are worth keeping an eye on here. The weekly chart is making a move to break out from a major compression regime. ASHR often acts as a lead to risk-on/risk-off in the broader market.
3. Chinese stocks have seen improving relative strength across the board over the last few weeks (chart via BBG).
- At the same time, China’s credit impulse is deeply negative suggesting we should expect a deceleration in growth from the region.
- The economist Claudia Sahm wrote a post last week discussing the difficult job the Fed faces in parsing through the COVID-induced noise in order to tease out some signal. In the chart below she breaks out the various PCE components showing that the rise in inflation is quite broad-based.
6. This chart from GS is pretty incredible. It shows that 35% of the SPX’s YTD returns have come from just 5 stocks (AAPL, MSFT, GOOGL, NVDA, TSLA).
7. It’s hard for the SPX to crack when you have heavyweights like AAPL in accelerating parabolic Buy Climaxes. The stock is now over 3std above its 200-day moving average.
8. Historically, this level of trend extension isn’t bearish and actually tends to lead to further gains over the next 2-months.
9. While the index continues to be carried higher by a handful of mega-cap stocks, broader market breadth continues to languish.
10. Market technician OG Walter Deemer makes a similar point with the NYSE ADL.
11. Berkshire Hathaway (BRK.B) is worth keeping on your radar. The stock is coiling in a 7+ month rectangle pattern and teeing up off its 200-day moving average.
12. The Reddit pumps GME and AMC look ready to let some air out. GME is back below its 200dma for the first time in over a year, plus short-interest as a % of float is at decade lows.
Article by Alex Barrow, Macro Ops
