“Expansions don’t die of old age; they are murdered by the Federal Reserve” ~ Rudi Dornbusch
Q4 2021 hedge fund letters, conferences and more
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Good morning!
In this week’s Dirty Dozen [CHART PACK] we look at the latest Flow Show summary, aggregate sentiment/positioning indicators not showing bearish extremes, credit spreads portending bad stuff ahead, Chinese money supply data, more oil stuff, gold in compression, and a big defense contractor coiled for a run, plus more…
- BofA’s latest Flow Show summary with highlights by me…
- There are a few measures of short-term sentiment that are at consensus bearish levels. But, when the broader postioning/sentiment picture is looked at holistically, it shows there’s still ways to go before we hit a major “Buy” signal from these indicators. Below are two examples via Credit Suisse (top) and BofA (bottom).
- Credit leads so don’t fight the bleed is the current mantra here at MO… The RoC in high yield spreads just hit a post COVID high. Historically, acceleration such as this precedes greater vol and poor forward returns over the near-term.
- China’s credit impulse looks to have bottomed out.
- And Total Social Financing also hit a record high last month. However, China’s M1 (my preferred measure of Chinese money supply) growth remains quite low. But all-in-all this is a positive development.
- Speaking of China, I’m not a buyer of their equities but there are some developing charts of interest there. Here’s BABA’s monthly, which has so far held its significant support level.
- Gold triggered a major “Compression Buy” signal late last month, which happened to coincide with the recent low. Red shaded areas mark past signals (Collective members can find this tool under the Compression tab in the HUD). It made an attempt at a major breakout on Friday but reversed going into the close. I’m looking for a move above Nov’s high to confirm a restart of the bull trend (see precious metal framework and Compression/Expansion regimes).
- A number of miners are looking constructive as well. Barrick (GOLD) just closed above its 200-day. I might put a tiny bit towards some DOTM’s on this name (see DOTM strategy guide).
- I’m just going to keep posting the incredibly bullish energy charts/graphs each week (since there are so many of them). This one from BofA shows energy profits are up 4x while CAPEX is down 30% since 2017.
- Energy has been the sole runner in the market race year-to-date.But there are some other areas that are showing some potentially positive developments under the hood. Tech, healthcare, and consumer discretionary all saw MACD Buy Signals above 50% last week (chart is from the “Sectors” tab in the HUD).
- News dropped over the weekend about LMT terminating their plan to buy Aerojet Rocketdyne after the FTC sued to block the deal. It’s been a while since I dug into the company but its long-term charts are coiling for a big move…
- The company is trading cheap on a historical PE basis. It’s also raised its dividend to nearly 8% and has been going on a share buyback spree. The board has approved $6bn in future share repurchases, which is roughly 5% of the market cap.
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Thanks for reading.
Stay frosty and keep your head on a swivel.
Article by Macro Ops
