Click here to read on our site and get better image quality.

*** Housekeeping note: As some of you know, the MO team recently joined an established asset management firm to manage capital utilizing the MacroOps investment process — if you are a qualified purchaser (please see attached description) and are interested in learning more, please let us know.

We’ve also recently expanded the team — bringing Dean Christians on board — and are in the process of merging our companies.

In November, MacroOps will relaunch with a new brand, website, and interactive quantitative dashboard featuring our models and proprietary historical datasets.

With these changes, we’ll be more than doubling Collective pricing at the relaunch to preserve the size and quality of our community. If you’ve been on the fence, now is a good time to try it and see if it’s a fit.***

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MO Portfolio & Trades

1. The portfolio rose +93bps last week and sits at +43.18% on the year, below our YTD high-water mark of +61%. We’re long Brent and heating oil futures, the BCOM Index, a few miners and energy plays, and select biotech and healthcare plays. We’re short silver, soybeans, and a small position in EUROSTOXX50.

2. The week ahead in data. The Fed enters its blackout period through Oct 29th. September CPI and PPI both ran hot, yet October hike odds fell to 17%. Wednesday we have earnings from both META and TSLA. Meanwhile, Treasury supply returns Wednesday with a 20-year reopening and Thursday with five-year TIPS, as crude stays above $100 and the 10-year nears 5.2%.

3. From Mike G’s latest (link here): “For two weeks, we’ve flagged the tension between equities and energy. Both looked poised to rise. One had to give. Last week gave us the answer. The Nasdaq sold off sharply after stalling roughly halfway to the 1x measured-move target of its 3.5-month head-and-shoulders continuation. The small flag that formed at the end of September gave us a key level to raise stops, and we closed our Nasdaq long in the Macro Ops portfolio when the bull flag failed to follow through.”

4. Last week I said rotation looked to be on the cards. That’s exactly what we got, with SPX ex AI outperforming by 5% (chart via GS).

5. This is a pretty incredible chart from GS. The “AI Winners” vs. “AI at Risk” trade has round-tripped 100% of its YTD gains. This explains the tough givebacks at many large funds this year; for example, Lone Pine and Brevan Howard have both given up nearly all of their 40%+ ytd gains.

6. It’s all one trade, and one of the best early indicators of a potential trend change is monthly export data out of Taiwan and South Korea (chart from BBG’s Simon White).

7. My teammate Dean Christians put out a couple of bangers last week. Dean notes:

“The following chart highlights instances when CCC- and B-rated high-yield bonds fell to the bottom 15th percentile of their respective 63-day ranges while the S&P 500 remained in the top 10th percentile. Although rare, this divergence between credit and equities has occurred near major stock market peaks. Notably, even higher-rated BB high-yield bonds are trading below the 15th percentile of their range.”

8. Also from Dean: “For only the 30th time since 1929, the TCTM Risk-Off Composite has triggered a warning, signaling narrowing market participation and increased vulnerability to a countertrend pullback in the S&P 500.”

Our current base case is for continued rotation and sideways chop and vol here, though we’re staying nimble.

9. Positioning and sentiment. GS reports US long/short hedge fund net exposure fell 3.2 points, the largest weekly drop since Liberation Day, to the 0th percentile across 1-, 2-, and 5-year lookbacks. TMT saw its largest weekly net selling on record. Gross exposure, however, held at 213.9% (83rd percentile over three years). Funds have “gotten less long,” per GS, not materially smaller. They also report six straight sessions of AI-stock selling, with cumulative selling matching late July’s intensity and the largest since March 2022 (-3.0 z-score).

DB’s broader equity positioning measure remains modestly overweight (0.17sd, 51st percentile), but that masks a sharp divide between underweight discretionary investors (-0.36sd, 24th percentile) and heavily positioned systematic strategies (0.81sd, 86th percentile). BofA’s Bull/Bear indicator’s active sell signal has ended.

10. A few months ago, in HIGH GEAR: A NEW ECONOMIC REGIME… I laid out the case for accelerating US growth and a breakout in rates. Below are two of the charts I cited in that report. I still believe rates are ultimately headed higher, but these indicators point to a continued near-term pullback in yields, which should give equities some additional relief.

11. There’s not much I like in this environment, though I’m seeing some tactical opportunities in FX. Last week we got long GBPUSD as it reversed off the bottom of its long-term sideways range. I’m considering a similar setup in AUD (weekly chart below), which has seen a big positioning flush.

12. One of my favorite equity names right now is Harbour Energy (HBR.LSE). Brandon wrote it up for the Collective the other week, arguing it’s deeply undervalued at ~$9/boe of proven reserves versus ~$18–21/boe for peers. He sees a shift toward lower-tax production lifting cash flow even with flat output, which supports debt reduction and shareholder returns. His bull case implies ~$11/share based on 7× projected 2028 free cash flow at $90 Brent. Chart below is a monthly.

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Thanks for reading.

Your Macro Operator,

Alex

Click here to read on our site and get better image quality.

*** Housekeeping note: As some of you know, the MO team recently joined an established asset management firm to manage capital utilizing the MacroOps investment process — if you are a qualified purchaser (please see attached description) and are interested in learning more, please let us know.

We’ve also recently expanded the team — bringing Dean Christians on board — and are in the process of merging our companies.

In November, MacroOps will relaunch with a new brand, website, and interactive quantitative dashboard featuring our models and proprietary historical datasets.

With these changes, we’ll be more than doubling Collective pricing at the relaunch to preserve the size and quality of our community. If you’ve been on the fence, now is a good time to try it and see if it’s a fit.***

JOIN THE COLLECTIVE

MO Portfolio & Trades

1. The portfolio fell -403bps last week, leaving us +42.27% on the year, below our ytd high-water mark of +61%. We’re long the Nasdaq, ETHUSD, semis, crypto miners, commodities index, US dollar, and some select biotech plays.

2. The week ahead in data. September CPI on Wednesday is the week’s decisive release. Markets price roughly a one-in-five chance of an October hike and better than even odds for December. A firm core reading would bring the October meeting back into play.

Earnings open Tuesday with JPM, GS, C, and WFC, followed by TSM on Thursday. Financials are down 7.5% over the past month while the SPX trades near record highs, so commentary on credit quality and capital markets activity should carry more weight than the headline results.

3. Good chart from @mark_ungewitter who notes, “SPX multi-decade trend channel offers three scenarios: 1) Imminent mean reversion; 2) Mean reversion following further overshoot, perhaps in the form of a classic Q4 rally; and 3) Durable new advance altering multi-decade behavior.”

4. DB’s latest positioning report suggests some rotation might be on the cards, noting, “The Tech rotation has run far and the risk-reward no longer looks favorable in the near term. Last week we flagged that the rotation into Tech that began in late July, the 5th in the last 2 years, was approaching the top of its long-run trend channel, a level from which it has turned several times previously. Tactically, the risk-reward no longer looks favorable, with about 4pp of outperformance to reach the top but potentially 16pp of relative downside if the pattern of rotations near the edges of the channel holds. We note that prior rotations have been inverted V-turns.”

We agree.

5. Current cross positioning certainly supports this. From GS: “Clients have certainly re-engaged in tech as a result of this macro uncertainty. Chart 2 shows that net exposure on our prime book to Mag7 as a % of Total US exposure is near 22%, which is the highest on record since the start of 2022. Chart 3 shows that Semis and Semi Equipment as a % of Total US Exposure now sit at ~12% (vs a peak in June of 14% but also vs starting the year ~6%). Our prime data shows that US Tech stocks in September had their largest % buying in a month since Feb ’25 (and were the only sector net bought on our prime book in the month of September).”

6. Meanwhile, our RTY positioning score is below the -75th %tile. A level that has marked significant bottoms in the past.

7. The “Big 10” AI names have reached a level of market concentration that has marked every previous bubble of the last 200 years, outside of the railroad bubble, which climbed to 63%. This is not reason by itself to be bearish. Just useful context for where we’re at.

8. 39% of US market cap is now trading at over 10x EV to sales, which is 4% higher than what we saw at the peak of the dot-com bubble.

9. Coatue recently put out a good deck on the AI space (link here). One thing they point out is that AI financing is evolving from “Big Tech pays for its own servers” into a multilayered system of leases, joint ventures, private credit, guarantees, and supplier backstops. The implication is that the AI boom increasingly depends not just on demand for compute, but on who can finance it, and who ultimately absorbs the risk if the economics disappoint.

A tell-tale sign of all late cycles is new “innovative” and increasingly complex forms of financing.

10. What will kill this late cycle then? The same thing that kills all cycles: tightening financial conditions, stemming from a Fed forced into a hiking cycle by increasing inflationary pressures.

This chart from 3Fourteen Research shows the Fed likely has a good deal more catching up to do.

11. We’ll be paying close attention to our AI CDS basket below. It’s well off its early ‘26 lows but has been moving sideways for the past few months. This should lead, or at least confirm, the next move in risk assets.

12. From my teammate Mike G’s latest weekly, “the ETH/USD analog to spring 2025 that we’ve been tracking for the last month continues to rhyme (link here).

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Thanks for reading.

Your Macro Operator,

Alex

Click here or on any of the charts to read on our site and get better image quality.

*** Housekeeping note: As some of you know, the MO team recently joined an established asset management firm to manage capital utilizing the MacroOps investment process — if you are a qualified purchaser (please see attached description) and are interested in learning more, please let us know.

We’ve also recently expanded the team — bringing Dean Christians on board — and are in the process of merging our companies.

In November, MacroOps will relaunch with a new brand, website, and interactive quantitative dashboard featuring our models and proprietary historical datasets.

With these changes, we’ll be roughly doubling Collective pricing at the relaunch to preserve the size and quality of our community. We’re running an enrollment this week, which will likely be the last chance to lock in current pricing. If you’ve been on the fence, now is a good time to try it and see if it’s a fit.***

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MO Portfolio & Trades

1. The portfolio fell -219bps last week, leaving us +45.01% on the year, below our ytd high-water mark of +61%. We’re long the Nasdaq, ETHUSD, semis, crypto miners, commodities index, US dollar, and some select biotech plays.

2. The week ahead in data. Friday’s soft payrolls dropped October hike odds to 16%. So Wednesday’s minutes are a bit stale.

3. Nasdaq futures put in a new all-time weekly closing high on Friday, which many wouldn’t expect given the feel of this market. The active contract now has to clear the June highs, which it’s bumping up against. Our read is that it punches through and moves higher.

4. My teammate Dean Christian put out a killer note over the weekend. One of the studies in the report looks at the unusual nature of this market and what it likely means. Dean notes that “the equal-weighted S&P 500 is on track to close lower for a seventh consecutive week, a streak last seen during the 2022 bear market. The chart below puts this move into historical context, with a blue dot marking each instance when a losing streak reached six consecutive weeks…

“As the chart illustrates, six-week losing streaks have historically occurred during corrections or bear markets. With the S&P 500 less than 2% below its record high, the current market backdrop is unprecedented. Weak relative trends are not inherently concerning and often result from mega-cap leadership, but outright price deterioration is harder to dismiss, and that is increasingly evident now.”

If you’d like access to his report, click here and sign up.

5. We’re seeing all kinds of unusual action… Another example, among many, is the breakdown in Financials (XLF) while the SPX continues to trade within a few % of all-time highs.

The forward returns chart shows each time XLF has fallen four straight weeks and/or is down over 8% while the SPX remains near its highs. This has happened only 12 times since 1989, and only twice before in its strongest form (sharp and sustained together): May 1993 and June 2000.

Historically, the next 3m for the SPX has looked normal, but the following year has lagged badly.

6. Here’s the same study overlaid on a historical chart. It’s rare to see this weakness in financials, and even rarer to see it both sharp and sustained. These episodes tend to cluster around market tops or extended stretches of sideways action (May ‘93). More reason to keep a close eye on any continued widening in credit spreads.

7. The backdrop is that the market is increasingly a single driver/narrative market. There’s the AI trade and then everything else, as shown in the GS chart below. This is why we’re seeing things like the 3m correlation between the SPX and the equal-weight index at all-time lows.

8. The market is simply reflecting earnings. As GS notes, “At the stock level, AI infrastructure stocks are expected to drive more than half of S&P 500 EPS growth in Q3. The top 10 contributing stocks are expected to account for over two-thirds of aggregate S&P 500 earnings growth this quarter, with Micron (MU) and Nvidia (NVDA) together accounting for more than 1/3 of index growth.”

9. But as MO readers know, this isn’t all that unusual when put into the broader context of where we are in the secular and cyclical economic and market regimes. This is simply Late Cycle action within a larger Core-driven regime. We should expect this narrowing and concentration to continue until something breaks, which will show up first in credit spreads and then get confirmed by the labor market.

10. GS prime book data notes that positioning is still defensive beneath the highs. Leveraged funds are at record net-short Russell 2000 exposure, and most equity sectors saw net selling despite strong indices. AI and semis remain the clear exception, with flows concentrated in mega-cap growth. Net L/S positioning has fallen to the 0th, 3rd, and 2nd percentiles on 1, 3, and 5-year lookbacks, respectively.

The best contrarian pockets are cyclicals and energy. Industrials, materials, transports, and data-center names sit near relative lows, while energy has been heavily shorted even with oil elevated. Meanwhile, $1.5trn+ has flowed into U.S.-listed ETFs year-to-date, cushioning headline indices.

In short: “constructive on earnings, cautious on the market.” Light positioning leaves room for an upside squeeze if yields can halt their rise, but breadth likely stays weak unless participation moves beyond AI.

11. We still like crypto here… BTC, ETH, and SOL are all in very tight daily compression regimes. We’ll be adding this week on follow-through.

12. The Nikkei 225 has broken out of a 10-month corrective pattern. Positioning has largely reset. We’re buyers here.

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Thanks for reading.

Your Macro Operator,

Alex

Click here or on any of the charts to read on our site and get better image quality.

*** The MO book is up +47.20% so far this year.

The Collective is where we transparently share the work behind these returns: differentiated research, every position tracked in real time, and ongoing debate with a global group of serious traders and investors, all dedicated to mastery of their craft.

We’ll be raising prices by roughly 50% in the coming months as we roll out new tools and keep the community manageable. Members who join before then will keep the current rate.

If this sounds like your kind of group, then make sure to get in soon before we hike the price***

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MO Portfolio & Trades

1. The portfolio gained +8bps last week, leaving us +47.20% on the year, below our high-water mark of +61%. We’re long Ags, commodities, miners, and ETHUSD. Long Nasdaq, healthcare, and crypto miners. Short CAD.

2. The week ahead in data. Payrolls and euro-area flash CPI land the same morning. Consensus is 100k and 4.1%, with Barclays warning seasonals could push the print below 50k. Wednesday brings August PCE at 3.7% headline and 3.3% core — the Fed’s own gauge, above target for a fifth straight year. EZ CPI is seen jumping to 3.8% from 3.2%, which keeps October live for the ECB.

3. As expected, the Qs jumped early last week and have consolidated sideways since. They remain firmly in a primary uptrend and an SQN Bull Quiet regime. The path of least resistance is up.

4. Despite the calm on the surface of the index, breadth has fallen to levels last seen near corrective lows.

5. My teammate Dean Christians flagged the narrowing rally in his recent report:

“The cap-weighted index is down only about 1%, but the equal-weighted S&P 500 has declined more than 5%, revealing a much deeper pullback in the average stock. Small caps are under even greater pressure, with the Russell 2000 ETF down roughly 8%, while interest-rate-sensitive utilities have plunged more than 17%.

Yields are the obvious culprit, with the 10-year Treasury jumping a staggering 15 basis points on Wednesday. What started as a selloff concentrated in rate-sensitive groups is now spreading into more areas of the market, and that deterioration is showing up in an expanding number of 52-week lows.

In fact, it was enough to trigger a 52-week low spike signal for S&P 500 stocks, a component of the TCTM Risk-Off Composite. With the new component signal, the TCTM Risk-Off Composite increased to 25%, leaving it two alerts short of a broad model warning.”

6. Rising yields are a net negative for risk assets. But on their own they’re a condition, not a catalyst. It matters why they’re rising — improving growth and earnings expectations, or rising inflation concerns. And the way they hit equities is through tightening financial conditions. The rate of change in HY and Baa spreads is accelerating to 12m+ highs, but it’s moving off historically tight levels. It’ll take a bigger move before that feeds into broader financial conditions, which still sit near multi-year lows as shown in the ANFCI chart below.

7. Which is partly why we’re seeing notes like this one from GS:

“US equities refuse to price any panic (GS panic index closed sub 1 on Friday) despite sentiment at the lows (GS sentiment indicator -0.9 … AAII bear ~50 … 70% of SPX stocks are trading below the 50dma … etc) … other risk barometers, namely bond vol (MOVE) and CDX also registering peak fear (~100th percentile) while VIX trades in the low teens (fully cognizant there was a CDX roll this week).”

8. That volatility outside the equity indices is keeping investors bearish despite the persistent bull trend in the dominant AI names. The chart below from @MacroCharts is a good example.

9. I’m watching the Narrative Pendulum closely here, since the market is now entirely reliant on the AI trade propping it up. Public interest (black line) is elevated but still below the “DeepSeek” levels that marked an intermediate top. The shaded red line shows trend homogeneity, which is elevated and rising, though still short of the levels that marked the last three intermediate tops in the AI trade. That backs up my feel: the AI narrative is crowded and increasingly fragile, but it likely has another 1–3 months in it, depending on path and speed, before it hits the consensus levels that mark intermediate to cyclical tops.

10. My teammate Mike G flagged a series of continuation consolidations in the Ag complex in his recent note (link here). We’ll be working buy stops in this space to see if the market can pull us in long.

11. The BBG Agriculture index is reversing off its lower Bollinger Band inside a Blended Bull SQN regime. Whether it can hold these levels will tell us a lot.

12. Plenty of people are trying to call the bottom in bonds. While we’re closer to an intermediate low than we are to the start of this move, I don’t think this selloff is over. I’m using the narrative tool to see when interest spikes and a consensus forms. The last major lows in bonds were marked by a consensus read in this tool.

13. I’m tracking EURJPY for a short entry. We missed the first break below its 8-month sideways rectangle, but it’s been compressing on the daily since. We’re working sell stops to see if the pair can pull us in.

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Thanks for reading.

Your Macro Operator,

Alex

Click here or on any of the charts to read on our site and get better image quality

***The MO port is currently up +47.12% ytd in 26’. The Collective is where we discuss the theory behind the positioning, publish the differentiated research, track the book in real time, and argue it out with a global group of serious investors. If that’s your kind of group, join us in Slack. ***

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MO Portfolio & Trades

1. The portfolio gained +167 basis points last week, leaving us +47.12% on the year, below our ytd high-water mark of +61%. We’re long Ags, energy, miners, ETHUSD. Long biotech, healthcare, crypto miners, and natty producers.

2. The week ahead in data: Thursday brings Xi to Washington with the tariff truce, rare earths and export controls on the table, plus three Nordic decisions. Supply is all front-end: 2s, 5s and 7s. Treasury’s 20–30yr buyback operation lands Thursday after a soft first round. The backdrop is a Fed that hiked to 3.75–4.00% with no dissent and a hawkish dot plot. Twelve of 18 see one more this year, and Goldman now expects October.

3. This environment isn’t without risks, but we trade the tape first, and price keeps telling us the path of least resistance is up. Qs are breaking out from a tight daily compression regime, inside a Bull Quiet regime and an established primary uptrend. We’re buying here…

4. Breadth still looks weak, though it’s nearing oversold. We don’t want to press long aggressively until broader participation bottoms and confirms the move.

5. On the positive side of the ledger, my favorite market internal (LQD/IEF) is inflecting to new multi-month highs. That suggests some durability to this breakout

6. Citadel laid out their bullish Q4 case in a recent note (link here), but they want a pullback first, with the bottom and next leg up not arriving until the end of September. Their reasoning:

“Buybacks are heading into blackout. 10% of S&P 500 weight is in a pre-earnings blackout today. By September 30 that rises to 61%, and the window does not reopen for the majority of the index until November 1. One of the market’s largest structural buyers is stepping aside during exactly the window when the calendar is weakest… The calendar is now entering the exact window we highlighted earlier this month. Historically, September weakness has been concentrated in the back half of the month, and the pattern has been even more pronounced during midterm years. We continue to think the path into month-end is lower.”

7. The index doesn’t tell the full story. Much of the market has been in correction for the past month while SPX and NQ traded sideways, thanks entirely to MAG7 retaining a decent bid. The question is whether the megas catch down to the underperformers or the rest catches up. I think the latter.

8. Sentiment & Positioning — GS: “US L/S Gross leverage rose +2.5 pts to 209.4% (33rd percentile one-year), while US L/S Net leverage fell -0.3pts to 49.9% (7th percentile one-year). US Fundamental long/short ratio (MV) decreased -0.9% to 1.625 (13th percentile one-year).” AAII net bull/bear sits in the 5th %tile, high bearishness. Our Trend Fragility gauge is at 76%, a neutral read that supports higher prices. And CTAs are extremely short bonds across the curve, suggesting we may soon see some respite from yields.

9. If the Iran escalation takes a breather and crude trades sideways, bonds get some relief and attention turns back to earnings. Those should keep coming in strong as long as the AI CAPEX cycle runs.

10. We flagged the bullish setup in semis and momentum last week. We’ve gotten more confirmation since, with leaders like AMD and SMTC breaking out of solid bases (charts are weekly)

11. USD positioning is mostly back to neutral, and I’m seeing setups in long dollar pairs. Here’s an inverted H&S bottom in USDSEK (weekly chart).

12. Weather forecasters have done nothing but revise up their El Niño forecasts since June. Month after month. They now put a three-in-four chance that this winter tops every El Niño since 1950. If this ends up being the case, there will be real consequences for South American and Australian growing conditions and for the Asian palm and rice complex.

13. The Ags trade is taking a breather after an explosive breakout from its 2yr compression regime. The chart below is a monthly of the BBG Ag subindex. Positioning had gotten crowded, so this correction is exactly what we’d expect. We’ll add to Ags as long as it holds above the breakout level.

14. H/T to Collective member @Phil Deane for this one. SBLK is a liquid way to play a constructive dry-bulk cycle. 145 vessels, limited effective fleet growth, improving cargo demand.

The earnings torque is showing up in the numbers... $144.9mn of net income and $1.21 adjusted EPS in Q2, with industry-low operating costs, so stronger spot rates drop disproportionately into cash.

Chart is a monthly. Low multiple relative to growth, insiders buying heavily, and the geopolitical backdrop should keep working in dry bulk’s favor.

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Thanks for reading.

Your Macro Operator,

Alex

FOMC this week with market pricing in 90% odds of a 25bps hike. At this point, it’d be bearish for the market if they don’t hike 25bps. Historically, stocks falter in the 6+ weeks following the first hike in a renewed hiking cycle. Though this time the market is already pricing in roughly 65bps of hikes over the next six months, so there’s now a relatively high bar for the Fed to surprise hawkish. We cover the main drivers behind the resiliency of this cycle to higher rates and geopol shocks. I show off a new narrative tracking dashboard I’ve been building and make the continued case for long energy plays, and more.

Click here or on any of the charts to read on our site and get better image quality

***The MO port is currently up +47.21% ytd in 26’. The Collective is where we discuss the theory behind the positioning, publish the differentiated research, track the book in real time, and argue it out with a global group of serious investors. If that’s your kind of group, join us in Slack. ***

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MO Portfolio & Trades

1. The portfolio fell -224 basis points last week, leaving us +47.21% on the year, below our ytd high-water mark of +61%. We’re long Ags, energy, miners, a little ETH. Long biotech, healthcare, crypto miners, and natty producers.

2. The week ahead in data: A Fed hike is roughly 90% priced after hot core CPI, so the SEP and Warsh’s presser carry more than the move. The BoJ is about 79% priced to reach 1.25% Friday, with Washington openly pushing Tokyo to normalise faster after July’s joint yen intervention.Tuesday’s 20-year reopening lands the day before the Fed, with the 10-year near 5% and last week’s buyback smaller than the market wanted.

3. Back in early July I wrote a DD titled “High Gear: A New Economic Regime.” It covered the compression in rates, argued a breakout was near, and made the case that the break would be higher in yields. Here’s the chart I shared. Article here.

4. That thinking continues to be affirmed by the inbound data. The Philly Fed General Conditions Index (tan line) is climbing to levels last seen in the ‘21 run-it-hot economy, which suggests ISM (amber line) inflects significantly higher from here.

5. On that note, our Market Implied Macro Regime “Overheating” indicator is rising again and is now pricing in a 75% probability of an overheating regime within the next six months.

6. One of the primary reasons this economy and market have shrugged off higher rates, geopolitical shocks, and commodity shocks is in the two graphs below. We’re in a completely anomalous period in US history: massive deficits run alongside full employment. Per the Levy/Kalecki Profit Equation, those deficits translate into corporate profits. And that profit source is non-cyclical, which is where the resiliency comes from.

7. We’re also getting the boost from an aggressive CAPEX cycle, which feeds back into profits again. The hyperscalers funding that buildout treat losing the AI race as an existential outcome, so a 25bps hike does nothing to slow the spend (chart via DB).

8. On top of that, most corporate debt was termed out at generational lows in 2020-21. This hiking cycle only hits new borrowing, which is why the effective rate paid by nonfinancial corporates and households sits below the policy rate.

9. That doesn’t run much longer. The stock of debt needing to be refinanced climbs steadily and peaks in 2029. By 2031 we’re looking at roughly $300bn of additional annual interest expense, about 13% of current after-tax corporate profits — and the paper coming due by then is a quarter high yield, versus 7% in 2027.

10. Our MO Aggregate Internal indicator is likely to cross below the -60% sell signal threshold this week. Highlights mark past instances with six of those preceding 5%+ corrections, and one signal failure in 23’.

11. Additionally, my teammate Dean Christians notes in his latest brief that the RoC in the 10yr yield has triggered a sell signal, wich is a core component of his TCTM RIsk-on/off signal. Forward returns for equities were overwhelmingingly negative during similar episodes. Collective members can find his report in our Slack.

12. From GS: “Equities typically struggle at the start of Fed hiking cycles, but the market has already priced substantial Fed tightening in coming months. The S&P 500 has generated an average 3-month return of -2% at the start of seven hiking cycles during the last few decades.

“However, the S&P 500 then generated an average 12-month return of +9%, with positive returns in every episode but 2022. In 1997, for example, the S&P 500 declined by 10% alongside the Fed’s 25 bp hiking “cycle.” Stocks bottomed when the market ceased pricing additional tightening, and the S&P 500 reached new highs within three months. Today, the rates market is already pricing more than three 25 bp hikes by the middle of 2027, lifting the bar for policy to surprise in a hawkish direction. The medium-term impact of Fed tightening on equities will depend on how tightening affects earnings growth, which is the most important driver of stocks.”

13. Oracle gave an exceptionally bullish read-through on AI compute last week. OCI grew 121%, GPU utilization hit 97%, renewals and resales cleared at roughly 20% premiums, and RPO reached $664 billion. Compute is still scarce and pricing is still strong. I think the long AI / long energy barbell starts working in tandem again, though I’d widen the second leg from energy to broad commodities. The AI narrative is getting exuberant fast, though.

Which brings me to what I’ve been building. I’ve spent the past few weeks trying to quantify and codify my read of Narrative Pendulum dynamics. The partial screenshot below is V.1. I’m backtesting it now to see whether the signal holds up and whether it’s actually additive to my gut feel. So far I’m excited about it. If I adopt it, it goes into the V.2 Heads-Up Display for Collective members.

14. Oil’s cone of possibilities is widening again. Hormuz still matters, but the Red Sea is becoming the bigger swing factor as threats around Bab el-Mandeb rise and Saudi export routes come into focus. Speculators are crowded short again. We’re long and we’ll add on opportunity.

15. The monthly chart of First Trust Natural Gas Producers (FCG) continues to trade exactly as you’d hope (we’re long).

16. Crypto is once again in a tight compression regime on the daily, similar to their tape before the recent breakout. We’re watching this closely for breakout.

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Thanks for reading.

Your Macro Operator,
Alex

OpenAI’s latest Astra release is a significant event and likely swings the AI narrative pendulum back in favor of the bulls. That’s coinciding with constructive takes in the KOSPI and memory space, plus more…

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***The MO port is currently up +49.45% ytd in 26’. The Collective is where we discuss the theory behind the positioning, publish the differentiated research, track the book in real time, and argue it out with a global group of serious investors. If that’s your kind of group, join us in Slack. ***

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MO Portfolio & Trades

1. The portfolio fell -97 basis points last week, leaving us +49.45% on the year, below our ytd high-water mark of +61%. We’re long Ags, PM miners, a little ETH. Long biotech, healthcare, crypto miners, and natty producers.

2. The week ahead in data: August payrolls printed 162k against 55k expected. September hike odds jumped to 65%, which makes Thursday’s PPI and Friday’s CPI the focus. Waller has said he would back a hold if August inflation cooperates and a hike if it does not. PPI Thursday, CPI Friday, Fed blackout throughout. 3s, 10s and 30s Tuesday to Thursday, while Treasury at least doubles its long-end buybacks from Wednesday.

3. Thursday’s PPI comes out before CPI this time, which makes it an important tell. Labor concerns are off the table after last week’s 6-sigma NFP beat, so inflation is the only thing the FOMC is looking at next week. PPI correlates strongly with CPI, and the greater the surprise, the greater the correlation.

4. The strong labor read wasn’t a surprise to us. We’ve been tracking the acceleration in the jobs market for a while now. The KC Fed’s LMCI, shown below, condenses 24 labor market series (employment, openings, hires/layoffs, earnings, hours, surveys) into an activity level and a momentum series measuring RoC. Jobs momentum is strongly inflecting higher while the activity level itself has stabilized and is starting to turn back up.

5. I saw that Barron’s latest cover is talking about the “Death of Bonds…” That’s typically not a great thing to see if you’re a bond bear. Then again, a study of magazine covers as contra signals shows that Barron’s isn’t necessarily a fade. Now, if The Economist comes out with something similar, then we’ll know it’s a good time to start loading up.

Bonds have been in a major rout though. This chart showing rolling 10yr annualized returns of bonds over the past 150 years is a doozy. Lowest reading on record.

Are we due for some mean reversion, or is this the beginning of the end for the American empire? Or something in between?

Time will tell. And while we’re not playing the bond short directly, because we don’t care to be on the other side of the Treasury, we’re quite long commodities which are moving inversely to bonds. Or vice-versa, rather.

6. Risk Exposures from GS: “US L/S Gross leverage rose +1.5 pts to 208.5% (27th percentile one-year), while US L/S Net leverage increased +0.9 pts to 48.4% (4th percentile one-year). US Fundamental long/short ratio (MV) increased +0.5% to 1.605 (4th percentile one-year).”

Short-term positioning has reset, at least amongst funds. Retail is another story. That makes the pain trade up. But like we talked about last week, there’s been quite a bit of call buying, so we could see some chop and vol before the next leg higher. Which fits with seasonality.

7. Implied and realized vols are low across the major assets (equity indices, bonds, FX). Good environment to buy some optionality and be long some vol.

8. This one is concerning, from GS: “we just traded through the lowest realized correlation period in recent history … realized correlation across SPX over the last six months is 11, only two periods in the last 25 years have seen corr this … Feb 2007 (senior yr college) and Jan 2018 (just before “volmageddon”) … history book suggests levels this low are not sustainable and have ended in a starburst of index vol convexity (caveat “past performance is not indicative of future returns”).”

Maybe this time will be different?

9. My teammate Dean Christians made this noteworthy observation in a recent note:

“Another group that caught my attention is the S&P 1500 technology hardware & equipment industry group, where the BB spread fell to a new year-to-date low this week as the index continues to form a triangle pattern. The group includes several of the memory names, which makes this compression particularly interesting to me.

“These stocks have started to act better, and if a year-end rally develops as seasonality shifts from unfavorable to favorable, this could be a group worth owning. As a reminder, compressed volatility doesn’t predict future direction, but as a general rule, markets tend to resolve in the direction of the previous trend.”

10. Whether we’re talking about tech hardware & equipment, the South Korean KOSPI, or MTUM, we’re really talking about one thing: memory. The DRAM/NAND chip companies have become the heavyweights in their respective indices. The KOSPI has recovered off its lows following a roughly 40%+ peak-to-trough decline and broke out of its recent compression last week.

Not a bad setup for a tactical trade to get long.

11. Emphasis on the tactical, because the pavlovian margined dip buying from SK investors makes me uneasy. This was the shallowest “deleveraging” event in SK history and half of it has already reversed. That’s late-cycle behavior. But late-cycle behavior goes on longer than most think.

12. I think last week’s release of OpenAI’s latest Astra model is a significant event in terms of Narrative Pendulum dynamics, similar to the Claude Mythos non-release that kickstarted the rally in AI/semi names at the beginning of the year. Astra seems to be a step function improvement and we’ll likely see the AI pendulum swing back into full swing bullish soon.

We’re considering going long DRAM and select cryptominer/AI compute plays here. Chart from Arc Price (link here).

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Your Macro Operator,

Alex

Agriculture remains our focus. This El Niño is arriving faster than almost all comparable events on record, while global temperatures continue to provide a strong 12-month lead on food prices. The Bloomberg Agriculture Index posted a strong monthly close in August, and history suggests this trend may only be getting started. Finally, we lay out the long setup in Brent crude.

***The MO port is currently up +50.37% ytd in 26’. The Collective is where we discuss the theory behind the positioning, publish the differentiated research, track the book in real time, and argue it out with a global group of serious investors. If that’s your kind of group, join us in Slack. ***

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MO Portfolio & Trades

1. The portfolio fell -53 basis points last week, leaving us +50.37% on the year, below our ytd high-water mark of +61%. We’re very long Ags, PM miners, a little ETH. Long biotech, healthcare, defense, and natty producers. Short Dow and copper.

2. The week ahead in data: Payrolls arrive Friday. ISM, ADP, and Challenger data come first, so Friday is more likely to confirm an already positioned market than deliver a major surprise. Warsh’s Jackson Hole remarks lifted the odds of a Sep hike to roughly 50%. Consensus expects 45,000 payroll gains and unemployment to rise to 4.2%

3. The end of August gives us a new set of monthly charts to review and assess what the tape — bar by bar — is telling us. The SPX monthly chart is below. Aug delivered a new all-time closing high and a breakout from its outside-inside-inside wedge compression. The month also closed just above the midpoint of its range, leaving a decent-sized upper wick

What does that tell us?

New all-time monthly closing highs are bullish: a trend in motion tends to remain in motion roughly 80% of the time. At the same time, the small body and large upper wick signal some indecision and a reluctance among bulls to press here. That suggests volatility and indecision may persist through September before the market retests or breaks above its August highs.

4. SPX is trading within a Bull Volatile SQN regime, within a sideways consolidation on the daily. While the path of least resistance remains higher on the primary trend, the current data read suggests a small washout below its current range is likely before the next leg up.

5. This aligns with the cycle composite for the SPX, where seasonality is quite bearish over the next month. The market, of course, doesn’t have to follow this pattern, and while I don’t expect a severe selloff, the rest of the data is telling me that we should expect some downside over the next few weeks.

6. Our preferred short-term measures of breadth momentum are the McClellan Oscillator and Summation indices below in red. Both are currently rolling over.

7. Which is what we’re also seeing in the % of members above their 200 and 50-day moving averages. Again, this isn’t the breadth profile of a terminally ill market. Just one that is losing some steam and likely needs a small flush to build up energy for the next leg higher.

8. Some highlights from the latest prime broker sentiment and positioning reports from GS and DB:

• Defensive shift: Hedge funds moved to the fastest U.S.-equity net selling since Liberation Day, taking net leverage to a one-year low; selling hit tech, cyclicals, utilities, and real estate.

• Systematic positioning is still stretched: DB puts it at the 82nd percentile since 2010, with vol-control exposure at a 100th-percentile historical maximum—limiting further buying and raising downside flow risk if volatility rises.

• Calm index, fragile internals: SPX/VIX remains contained, but high-beta momentum and TMT/AI baskets have sold off sharply, exposing crowding and factor-volatility risk.

Overall, the picture is pretty mixed, positioning-wise. Q3 buyback blackout window begins on 9/15 for roughly 40% of the SPX’s market cap, pulling an important layer of support for this market during its worst two-week period of the year, according to GS.

9. But SPX call/puts suggest some complacency.

10. SPX 30-Day ATM IV at 11.7 is near the lowest levels of the past two years — only the Dec 2024 low vol period was cheaper, briefly touching ~9.7. So not a bad time to buy a little protection for your long book.

11. We remain primarily focused on the Ags trade. The El Niño temperature-anomaly index (red line) has historically led global food prices by roughly 12 months, and it is now accelerating sharply (h/t Variant Perception). The second chart shows that this El Niño is arriving faster than almost any prior event on record.

12. The BBG Agriculture Spot Index put in a large monthly bar which closed on its highs, following a breakout from a major multi-year compression regime. This is a very bullish chart.

13. My teammate Dean Christians shows (link here) that when Ags get moving, they can really move. And on a 2yr rolling basis, this move has a long way to go to match previous bulls.

14. Someone sent me Papic’s latest slide deck, and I strongly agree with his Brent view in the slide below. Global inventories will need to be rebuilt, while Chinese crude imports have likely bottomed — removing a key headwind that has helped cap prices since the war began.

Meanwhile, the conflict appears to be entering another escalatory phase, as Iran increases its use of kinetic leverage in an effort to pressure Trump ahead of the midterms. Positioning remains heavily short, the December contract is nearing a breakout to new highs, and we are entering a seasonally strong period. And calls are cheap.

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Your Macro Operator,

Alex

But we’ve entered a period of weak seasonality that runs through mid-October. Short-term breadth deteriorated last week, and rotation is picking up under the surface. Trend continues. Chop and vol come with it.

Ags broke out from their tightest monthly compression in 30-plus years. We’re long and buying, for reasons outlined below. The DXY triggered a significant sell signal — historically a precursor to poor returns. The pound is setting up for a major breakout amid bearish positioning. Natural gas producers are showing constructive tapes. And that’s just the start.

***The MO port is currently up +51.43% ytd in 26’. The Collective is where we discuss the theory behind the positioning, publish the differentiated research, track the book in real time, and argue it out with a global group of serious investors. If that’s your kind of room, join us in Slack. ***

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MO Portfolio & Trades

1. The portfolio rose +680 basis points last week, leaving us +51.43% on the year, below our ytd high-water mark of +61%. We’re very long PMs and miners, EUR, MXN, and ETH. Long biotech, healthcare and defense. Long corn and KC wheat. Short dow.

2. The week ahead in data: Wednesday’s a big day — PCE in the morning, NVDA earnings after the close. Friday brings Warsh’s keynote at Jackson Hole.

3. We closed our ultra bond short last week for a small gain. We don’t care to fight the administration. Bessent’s announcement mattered less for the mechanism than for the signal: Treasury doesn’t want a higher long end, and it’s willing to act.

We may re-engage down the road. For now we’re shifting focus to other ops — Ags chief among them. The Bloomberg Ags index just broke out of its tightest monthly compression since ‘95, which preceded a significant bull trend. Also, this setup looks nearly identical to the one we play in the BBG BCOM Index last year (link here).

Last week I interviewed a former MO teammate, now a SpaceX meteorologist, on the inbound Super El Niño. He’s an extremely sober guy, not prone to hyperbole. When he tells me the data points to the most significant El Niño since 1877 — an event that killed roughly 4% of the world’s population through drought and famine — I listen.

Markets are horrible at pricing extreme, anomalous events beforehand. Ags are set up for a major bull market. We’re long and buying.

The interview transcript is available for Collective members in the Slack and Research area.

4. Even without the El Niño tailwind, Ags were already setting up for a bull market — they’re simply following the Commodity Relay, a concept I first saw from Martin Pring. Precious metals kick off a commodities bull market, then industrial metals, then energy. Ags pull up the rear.

5. Positioning has shifted recently, but on an aggregate basis it’s still neutral.

6. Our lead technical analyst, Mike G, broke down the classical charting setups we’re seeing across the space in his latest weekly (link here). Below is corn — we’re long.

7. Cocoa’s another name on our target list for an entry. It’s coiling within a broader uptrend.

8. My teammate Dean Christians flagged this in a recent note: his Trend Composite just flipped negative on the DXY, triggering a sell signal. Similar signals have historically preceded poor forward returns for the dollar.

9. We’re long EUR and MXN, and looking to add GBP. The pound’s been compressing for 12-plus months in a rectangle regime, with price nearing the upper bound of that consolidation.

10. 3-Year Spec positioning is coming off the 0th percentile — past instances have tended to mark major bottoms.

11. Speaking of the pound: the FTSE 100 futures are giving us a pullback reversal off the lower daily band within a Bull Quiet regime. Clean technical inflection point to add size with little risk.

12. We remain bullish the broader trend in risk assets — that’s what the weight of the evidence suggests. Dean’s TCTM Risk-Off model recently fell back to zero. Not bearish.

A few measures of short-term breadth did weaken last week, and we’re heading into a period of weak seasonality through mid-October. Things likely hinge on whether bonds take out Bessent’s line or reverse here. Positioning in VIX futures is also stretched, which historically precedes higher vol. Base case: trend up, vol up, rotation continues.

13. Summary notes from GS’s latest Prime Services positioning report:

Positioning turned defensive fast: hedge funds shifted from buying to the fastest US-equity net selling since Liberation Day, cutting net leverage to a one-year low; selling was broad and concentrated in tech, cyclicals, utilities, and real estate.

• Index calm understates fragility: SPX/VIX remained relatively contained, but high-beta momentum and TMT/AI factor baskets suffered sharp drawdowns, signaling elevated under-the-hood crowding and factor-volatility risk

• Rates and growth are the key macro risks: rising long-end yields, curve steepening, policy uncertainty, and weakening signals from major consumer companies are pressuring duration-sensitive equities and raising concern over the consumer backdrop.

• Sentiment is cautious, not panicked: flows are described as broadly benign and positioning cleaner after de-grossing, while investors are adding gold/index hedges and chasing crypto; a bond rally could trigger meaningful CTA short-covering.

14. First Trust Natural Gas ETF (FCG) broke out from a major compression regime — its tightest since ‘13, which preceded a significant 12-plus month bull rally. We’re long and buying here.

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Your Macro Operator,

Alex

Long bonds are dancing on a significant level. Momentum’s cheap now (relatively) and looks to have put in a durable low. This El Nino is shaping up to be a once-in-200-year+ weather event, and the market isn’t pricing it right. We look at a few Ags as a way to play it. Then we close with a bonus chart on gold miners showing a 100% 6-month hit rate, plus more.

***The MO port is currently up +44.6% ytd in 26’. The Collective is where we discuss the theory behind the positioning, publish the differentiated research, track the book in real time, and argue it out with a global group of serious investors. If that’s your kind of room, join us in Slack. ***

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MO Portfolio & Trades

1. The portfolio rose +147 basis points last week, leaving us +44.63% on the year, below our ytd high-water mark of +61%. We’re long PMs, EUR and MXN, short long bonds, short dow, long ETH and short BTC, long tech, semis, robotics, biotech, and defense.

2. The week ahead in data: quiet until Jackson Hole.

3. Ultras are dancing on their ‘23 swing low. Next week or two should tell us if this breakout holds. We’re short, waiting on further confirmation to add.

4. SPX is in a strong uptrend off its compression breakout. Flipped into a Bull Volatile SQN regime last week — these produce some of the sharpest rallies, and some of the bigger tops. Stay on your toes.

5. Our preferred short-term breadth measure, the McClellan Summation Index and Oscillator, isn’t blowing the doors off, but it’s positive and moving the right direction. For now.

6. S&P 500 / 1500 advance-decline lines keep leading price. This is not bearish.

7. From GS: “Overall book Gross leverage -0.2 pts to 299.5% (44th percentile 1-year) and Net leverage +0.7 pts to 78.2% (45th percentile 1-year). Overall book L/S ratio +0.6% to 1.707 (45th percentile 1-year).”

Short-term positioning and sentiment still support risk assets. Longer-term measures — BofA Bull-Bear below, NYSE Margin YoY — show froth.

8. Momentum’s come off its historically crowded levels — still elevated, though — while relative valuation has fallen to the 4th %tile. Same picture as positioning: short-term bullish on momentum and risk assets, but the intermediate-term and out keeps getting tougher.

What to do?

Keep it tactical. Read: nimble and light.

9. Memory ETF DRAM looks to have put in a durable bottom. We’ve got a small long and will add above this recent horizontal level. Tactical position, nothing more.

10. Historically, I’ve been dismissive of grave weather warnings and their market impact. That’s served me well — most of the time it’s just doomers talking their book. But we’ve got a genuinely no-BS meteorologist in the Collective, Steve, and hyperbole isn’t his style. So when he posted in Slack that “Latest observations and models have have gone bonkers - now forecast to be the strongest EL-Nino in 200 years,” my ears perked up.

If you’re not caught up on what’s coming weather-wise and what it means for markets, here’s a recent video presentation from Hacket, plus the slide deck.

I’ll be interviewing Steve later today and sharing my notes with the Collective.

11. Sugar looks like one of the markets most poised to benefit from this multi-generational weather event. Mike G called the setup in his latest weekly (link here): “In the August 1, 2026, issue, we highlighted White Sugar futures’ retest of the 50-DMA. This week, price hit the 3-month symmetrical triangle’s 1x measured move target at 514.3.”

We’ll be buying on any pullbacks.

12. Maybe it’s the unending war, the SoH that keeps not opening, DM fiscal largesse, or now El Nino — but Ags and commodities broadly have great long-term charts. Here’s the setup in KC hard wheat: price breaking out of a multi-year inverted H&S bottom.

Also, the BCOM Index (BCI etf) is bull flagging on the monthly. May be time to get long for the second leg up.

13. Bonus chart from our new teammate Dean Christians of TPMR. I’m no stats guy, but a 100% hit rate on miners, 6 months out — that’s bullish, no?

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Thanks for reading.

Your Macro Operator,

Alex

Not all is rosy — credit continues its multi-month negative divergence. These divergences can persist for some time before equities catch down, so nothing to do at the moment, especially with breadth still supportive. But it’s worth watching.

We make the case for software, a crypto miner turned AI compute play, and platinum, which has bearish positioning and an inflecting tape. Plus more…

***The MO port is currently up +43% ytd in 26’. The Collective is where we discuss the theory behind the positioning, publish the differentiated research, track the book in real time, and argue it out with a global group of serious investors. If that’s your kind of room, join us in Slack. ***

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MO Portfolio & Trades

1. The portfolio rose +309 basis points last week, leaving us +43.09% on the year, below our ytd high-water mark of +61%. We’re long PMs, EUR and MXN, short long bonds, long tech, semis, robotics, biotech, and defense.

2. We have the setup bar for a short on the monthly chart of Ultras, but we need a confirmatory signal before pressing it. I’m looking for a weekly close below the Oct ‘23 pivot low as that signal.

3. As we’ve been expecting, the SPX broke out last week from its multi-month compression. This is within a Bull Quiet regime. Odds are decent here that equities move into a runaway parabolic.

4. Our Trend Fragility indicator, a composite of short-term sentiment and positioning indicators, sits at 78% and rising. That confirms the bull trend — a cautionary signal doesn’t trigger until it clears 90%.

5. Not all is sunshine and roses though. One of the more troubling aspects of this rally: it’s coming on the back of a multi-month negative divergence in credit.

6. And credit tends to lead… Here are the past large divergences preceding the ‘22 and ‘20 market tops. That’s not an immediate cause for alarm — these divergences can persist for months before stocks “catch down.”

7. Outside of credit though, the broader backdrop looks good, if not great. Breadth remains strongly supportive. Below you can see the % of members above their 50 and 200 day moving averages. Both are rising in the current regime, unlike the previous two larger selloffs in ‘25 and ‘22.

8. Most investors remain underpositioned in the broader market, with semis the exception. There are also indications that much of this rally is being driven by short-covering. The charts below from BBG’s Simon White show short interest — especially in tech and software — remains elevated.

9. The below from StateStreet confirms. According to them, investors remain historically underweight tech/software.

10. I’m quite bullish on crypto miners turned AI compute plays. IREN is one of my favorites in the space. They own 5GW of secured, grid-connected power and have already converted that scarcity into $15.9bn of signed, largely prepaid offtake with Microsoft and NVIDIA. It’s the only name in the miner-to-AI cohort with a trailing GAAP profit, yet it trades at a fraction of peer EV/EBITDA (12x vs. TeraWulf/Hut 8 in the 50s). NVIDIA’s warrant and Microsoft’s prepayments fund the buildout, so the equity carries less dilution risk than the tape implies.

11. 6m Net Spec positioning is turning up from the floor.

12. While price has broken out from its two month rectangle bottom following a 47% peak-to-trough correction. One could put buy stops right above its multiday range to see if it can pull you in for a long.

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Your Macro Operator,

Alex

Our bias remains for an eventual breakout to the upside in SPX as the backdrop points to rotation out of the crowded momentum/semi trade than the lead up to a broader correction. But until we get a catalyst, a real improvement in credit and internals, or a proper washout in sentiment and positioning, we’re not interested in aggressively trading these markets.

Good thing we’ve got other pools to swim in. Long bonds are breaking out of the major compression regime we’ve been tracking for months. We’re in a new secular regime for yields, and term premium is simply reverting to its historical average.

We also look at natty producers, some short-dollar trades, and a mystery in inventories…

***The MO port is currently up +40% ytd in 26’. The Collective is where we discuss the theory behind the positioning, publish the differentiated research, track the book in real time, and argue it out with a global group of serious investors. If that’s your kind of room, join us in Slack. ***

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MO Portfolio & Trades

1. The portfolio fell 200 basis points last week, leaving us +40% on the year, below our high-water mark of +61%. We continue to hold high levels of cash. We took profits Friday on our NQ short, and now just hold small positions in oil and gas equities.

2. Ultra bonds put in their lowest monthly close on record, taking out their Oct 23’ pivot low. We’ve been tracking this setup for months now, making the point that it’s essentially the lagged inverse trade to the BCOM Index compression setup that kicked off in the Fall of last year. There are a number of macro drivers behind this one, but they all really center around term premium rising back towards its historical average (see charts below), as investors demand more pickup to compensate for the changing landscape. The primary reasons here being (1) large US deficits (2) JPY intervention (3) rising geopol/policy uncertainty (4) high inflation and rising inflation vol (5) Warsh-induced uncertainty at the Fed, and the list goes on (we are short).

I laid out the case for higher rates back in June, which you can read here.

3. The term premium on the 30yr has broken out of the top range of its 25yr average, indicating we’re in a new secular regime in rates.

4. Term premiums across developed markets are rising, and leading the US higher. Current UST 10yr term prem is at 0.68. Its 50yr average is 1.64 or roughly 100bps higher.

5. Another way to look at this is the UST 10yr term premium-to-yield ratio which currently sits at 0.17. Well below its historical average of 0.31.

6. We have entered a more uncertain world on many fronts and steeper curves are starting to reflect that. The chart below shows the 10yr term prem in white and the US Economic Policy Uncertainty Index in blue.

7. We got a bull trap in the DXY. Thankfully, we exited our long dollar position right after the Fed meeting last week, before Japan’s intervention in the yen. We’re now looking for short USD setups to play this breakout failure (chart is a monthly pulled from Mike G’s latest, link here).

8. Here’s our dashboard showing the latest CoT positioning across all FX pairs. EUR, CAD, and JPY are all crowded short.

9. Here’s the 3yr percentile of Net Specs in EURUSD, the most heavily shorted of the bunch at the moment. Spec positioning is currently in the 2nd percentile. Green highlights mark prior instances where positioning crossed below 15%.

10. According to StateStreet real money has been buying this dip in tech.

11. We’re mostly sitting on the sidelines of this market. We booked profits on the NQ short last week, and our bias remains higher on SPX — the weight of evidence still points to rotation, not a significant correction taking hold.

The crowding in momentum we saw these past couple months was about as extreme as it gets though. This JPM chart makes the case. We’ll likely see these momo names struggle to find their footing for a while longer.

12. Our teammate Dean Christians made the same point in his latest monthly presentation. One chart he shared: Semis breadth composite is below -8%, a level where forward returns have historically been poor.

13. Still keeping an eye on the McClellan Summation and Oscillator to see if they can turn things around.

14. I’ve been revisiting some Natty equity plays, as positioning is crowded short in gas and a number of the equities are showing strength on the monthly charts. My current favorites are RRC and EXE, which is shown below.

The quick and skinny bull thesis on EXE is that it’s becoming both the largest producer and marketer of US natural gas, adding Twin Eagle’s storage and pipeline network to its existing scale. And management sees a multi‑decade demand boom from LNG exports, AI datacenters, and onshored manufacturing, making gas a long-duration way to play the AI buildout.

We’re digging into both of these and will be out with more for Collective members soon.

15. This from JPM is a bit of a head scratcher… if any of you have thoughts on why this is, please ping me. Here’s JPM:

“One of the more perplexing developments here is inventories, which have fallen for five straight quarters, with much of that coming in the manufacturing sector (Figure 3). This type of behavior is more typical of a recession, and yet goods-producing industries have been performing relatively well, at least in comparison to the standards of recent years.

“Normally, this type of inventory drawdown would lead us to raise our growth forecast for coming quarters, under the expectation that firms will need to restock, with at least some of that coming from domestic production. We have held off for now while we evaluate why the inventory decline has occurred. The inventory decline has overlapped closely with the trade war, and there is some possibility that an eventual re-stocking might come disproportionately via higher imports.”

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Your Macro Operator,

Alex

The DXY looks ready to move again. Long bonds keep compressing. Historically elevated earnings expectations are not the bullish setup they’re sold as, and ship crossings through the Strait of Hormuz are back to nil. That’s going to matter soon.

***The MO port is currently up +43% ytd in 26’. The Collective is where we discuss the theory behind the positioning, publish the differentiated research, track the book in real time, and argue it out with a global group of serious investors. If that’s your kind of room, join us in Slack. ***

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MO Portfolio & Trades

1. The portfolio rose 50 basis points last week, leaving us +43% on the year, below our high-water mark of +61%. We recently reset to mostly cash with a small Nasdaq short, small crypto longs, and a small long in oil and gas equities.

2. Bonds are compressing. Bollinger width on the monthly is its narrowest since 2018. Compression regimes are reliable in exactly one respect: they precede large moves. They say nothing about direction. Our bias is that this one resolves lower.

3. Ultras on the daily. Looks like a possible double bottom around the recent key pivot low. No trade here. Still watch and wait.

4. Our new teammate Dean Christians of TPMR pointed out last week (link) that the dollar is in an extremely tight short-term compression regime:

“Its Bollinger Band spread has compressed to only 0.93%, a reading that ranks in just the 4th percentile of all observations dating back to 1972. That’s an unusually quiet market. Even more interesting, the spread has fallen to its lowest level since December 2021, right before the dollar launched into a major advance as the Fed embarked on its 2022 tightening campaign. While volatility compression doesn’t predict direction, the historical backdrop suggests the current period of calm may not last much longer. As a reminder, the Federal Reserve meets next week.”

5. Our Lead Technical Analyst Mike G notes the DXY’s completed bull flag in his latest weekend must-read (link).

6. DXY breadth, measured by the percentage of pairs above their 200-day, recently crossed above 70%. That’s broadening strength. Green verticals mark past instances of a first cross above 70% in at least three months.

I don’t like how slow the dollar’s been to follow through post-breakout. The data still favors the upside case. FOMC will drive near-term direction, but we’re considering buy stops above last week’s highs.

7. The market is pricing one hike by September’s meeting. Harley Bassman (@ConvexityMaven) is one of the few bond commentators I read closely. His post from last week is worth chewing on:

“My two cents....

I have been on record as “higher for longer” against the naysaying Team Transitory. Thus I pushed back hard on the late-2025 expectation of three FED rate cuts.

To my chagrin, I was more right than anticipated as I now expect the FED to hike by 50bp in July.

A 25bp hike is too chicken $hit to match Warsh’s rhetoric, and 75bp implies he knows we have a massive problem, which he does not.

Moreover, this recent inflation is all sourced from Oil, which is indeed “transitory”; and I do not see how higher rates changes that. What matters is wage and service inflation, which is not crazy; and of course OER which is projected to decline.

A 50bps hike shows there is a new sheriff in town, and he is not beholden to the President. The tail risk, of course, is a 1994 Greenspan hike, but I am not sure he wants to devastate the Globally-linked UST rates plumbing (SVB redux anyone) with a full on Yield Curve inversion.

Everybody on the planet is into the “steepener”, and so I wonder if the selling of the front-end (T2s) is driven by new positions ahead of Warsh, or just stop-out after stop-out of all the long Yield Curve trades....it feels like the latter.

Enjoy the summer.”

8. Bloomberg’s Simon White had a good piece last week on the pickup in inflation volatility. It’s not the level of inflation that drives the pricing of risk assets. It’s the variance.

9. White’s point: “inflation exhibits heteroskedasticity, ie its variance rises as it increases. That’s clear as day if we split US CPI into deciles, with the highest decile having by far the largest inflation volatility on average.”

10. He shows the causal chain. Rising inflation vol leads to higher term premia and wider credit spreads.

11. Some of this is energy, courtesy of the US-Iran war. Trump reportedly called off an escalatory strike over the weekend, citing concerns over depleted US munition stockpiles. Doesn’t change the picture. Strait traffic is back to nil, and that starts to matter for oil and everything downstream. Fertilizer. Food.

12. Great chart from BCA Research with tweaks from @McClellanOsc. Better to buy when expectations are depressed, not exuberant like they are now.

13. We’re not bearish but we are increasingly cautious. Add the deterioration in credit to the list (chart from Jason Goepfert / SentimenTrader).

14. Internals continue to deteriorate. We still haven’t seen enough in the weight of the evidence to call a major trend change, but the backdrop points to more near-term weakness and volatility. If Bassman is right and the Fed hikes this week, let alone 50bps, we could be in for a volatility pocket.

15. Our preferred short-term breadth measure, the McClellan Summation and Oscillator, have both rolled over. That confirms what internals and credit are telling us. Be defensive and wait for clarity or a positive catalyst. We’re comfortable holding high cash and will reassess post-FOMC.

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Thanks for reading.

Your Macro Operator,

Alex

Look further out and the picture darkens. Positioning, sentiment, and liquidity are all stretched to levels that have rarely rewarded the crowd. Cash is near record lows, leverage near record highs, and everyone’s crowded into the same comfortable story.

So we play both horizons: long the trend until breadth breaks, while sizing for the reversion the intermediate evidence keeps pointing toward. Two surprises this week — financials gave a rare bullish signal, and our Market-Implied Regime indicator flipped to something we didn’t expect. More on both below.

***The MO port is currently up +42.5% ytd in 26’. The Collective is where we discuss the theory behind the positioning, publish the differentiated research, track the book in real time, and argue it out with a global group of serious investors. If that’s your kind of room, join us in Slack. ***

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MO Portfolio & Trades

1. The portfolio gave back 70 basis points last week, leaving us +42.5% on the year and below our high-water mark of +61%. We recently reset to mostly cash. From here we expect to rebuild exposure in biotech (XBI, ARKG, and select names), cybersecurity, energy and crude, and a narrow set of the Mag7 (META, NVDA).

2. Bonds are compressing. Bollinger width on the monthly is its narrowest since 2018. Compression regimes are reliable in exactly one respect: they precede large moves. They say nothing about direction. Our bias is that this one resolves lower.

3. The dollar is testing its own line. DXY is dancing on the level it recently broke, now acting as support. Whether it holds there or fails will set the tone for macro over the coming months. We’re watching for follow-through, or a bull trap.

4. The S&P continues to coil. Our base case remains an eventual break higher. Near term, renewed US–Iran tension and firmer oil argue for some potential downside first.

5. Breadth eased but held. Our Aggregate Breadth Indicator slipped to +2, still consistent with the prevailing uptrend. A move to +1 or below would, on our history, raise the odds of a 7%-plus correction materially.

6. Internals are deteriorating. The key market internals are moving the wrong way. If the picture doesn’t stabilize soon, our one-to-three-month outlook turns decidedly more cautious.

7. Liquidity keeps grinding lower. Our Liquidity Gauge continues to trend down, which adds weight to the intermediate-to-longer-term caution.

8. Positioning and sentiment are stretched, especially on longer horizons. Hedge-fund net leverage sits at 79%, just off four-year highs; gross leverage near 312%, close to a record. BofA’s Bull/Bear gauge is at 9.6, its highest in more than five years. Schwab’s STAX, which tracks actual retail flows and positioning, has jumped to 59, a four-year high. Our own Trend Fragility measure is at 71% and rising. None of these are a timing signal. But together they describe a market with little cushion.

9. The latest FMS tells the same story. BofA’s July Global Fund Manager Survey shows cash down to an “uber-low” 3.6%, managers their most overweight US equities since December 2024, the highest “boom” expectations since February 2022, and a record 54% now forecasting no landing. Consensus has rarely been this comfortable.

10. One model disagrees with us, and we’re listening. Nearly all of our work points to higher rates once the current one-to-two-month lull in inflation passes. One reading though cuts the other way. Last month our Market-Implied Macro Regime indicator flipped to a 100% Goldilocks signal, meaning low, positive growth alongside low and falling inflation. The indicator has a strong record predicting the regime six months out. It isn’t our base case. But a model with a good hit rate contradicting your priors is exactly the kind of evidence to sit with rather than wave off.

11. China is still deleveraging, and commodities don’t seem to care. State Street’s China Monetary Conditions Index keeps making new all-time lows, and it tends to lead macro momentum. What’s telling is how well commodities have held up regardless. Copper is near record highs through a long, deep Chinese deleveraging. The global growth and inflation picture changes materially the day China restarts its growth engine.

12. We still like precious metals, and we think we’re early. For now we’re waiting out the correction, which is a rates story. Until bonds find a durable floor, we stay on the sidelines here.

13. Central banks keep buying gold. The pace is accelerating, which puts a floor under how far the metals can fall.

14. The clearest positive is in the financials. Our new colleague Dean Christians (TPMR) flagged a rare breadth thrust in the sector. This week every financial sub-industry group registered a bullish short-term Dual Trend buy signal, something last seen in 2021.

The base rate is encouraging: when more than 95% of financial sub-industries are on buy signals, the sector has compounded at 19.6% annually, well above its average back to 1959. As Dean put it, “the ongoing rotation out of technology has fueled improving participation across several other sectors, with financials standing out as one of the primary beneficiaries.”

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Thanks for reading.

Your Macro Operator,

Alex

***The MO port is currently up +43.3% ytd in 26’. If you’d like to join the Collective, our premier service that offers discussions on high-level theory and performance, differentiated research, real-time portfolio tracking, and a global community of serious traders/investors dedicated to mastery, then click the below and sign up. We look forward to seeing you in our Slack!***

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MO Portfolio & Trades

1. The portfolio ended last week down -70bps, bringing year-to-date returns to +43.3%, below our YTD NAV high of +61%.

Current positioning: All cash as we recently did a portfolio reset but we’ll be repositioning back into biotech (XBI, ARKG and select names), cyber security, energy / crude oil, and select Mag7 (META, NVDA).

2. Bonds continue their compression on the monthly tape with BB width at its tightest range since 2018. Compression regimes precede big trends but are directionally agnostic, though our bias is for a breakout to the downside (more on this below).

3. Bonds are testing key levels of support. Yesterday’s weak CPI surprise provided only a temporary boost before reversing and closing the day unchanged. There’s no clear short entry yet, as it’s oversold against its 20dma. We’re continuing to keep a close eye on this as I expect things are setting up for a bearish breakdown come end of summer, once this short-term disinflationary impulse runs its course.

4. There is a tactical long in the front end, 3m SOFRs. Speculative positioning is record short. I’ve laid out why I’m bullish rates (bearish bonds) here, but I think we’re in a 1-2 month window where inflation and growth surprise to the downside, making this a tradeable setup. I’m considering putting in a buy stop above recent highs to see if the market can pull us in long.

5. But again, this is a short-term tactical trade at best. The best central banker (2yr yields) says the Fed’s next move will be a hike.

6. Our Leading Yield Indicator continues diverging higher.

7. DXY continues to hold its breakout / support level. Not much to say here. We’re willing to play it in either direction; long on a move above recent highs and short on a bull trap breakdown.

8. Our bias for risk assets continues to be bullish. SPX is still trading in a 2 month sideways range, within a Bull Quiet regime.

9. Breadth continues to expand putting the odds strongly in favor of a bullish breakout. Notice the opposing breadth picture that preceded the March selloff, where breadth diverged lower compared to today’s where its diverging higher.

10. However, one thing we’re closely monitoring is the negative divergence in a few key internals, such as credit (green line) and Qs vs SPY (tan line). I suspect we’ll see both bottom out and reverse soon. If not, I’d be hesitant to buy any breakout in SPX as it’d likely be a trap.

11. From Citadel Securities: “Despite the S&P 500 trading within 1% of all-time highs, S&P 500 Information Technology, the Nasdaq 100, and even the S&P 500 Semiconductor industry all trade below their respective 10-year average forward P/E multiples.

Some of the market’s highest-quality growth companies are entering earnings with valuation support rather than valuation headwinds.”

12. Semi’s forward PE is back below their 10yr average. Admittedly, this is on the back of elevated earnings expectations (chart via Citadel).

13. Speaking of semis, RenMacLLC recently pointed out that nearly 87% of semi names are oversold.

14. The memory ETF DRAM is bouncing off its lower band, offering a decent spot to play for a tactical long with a tight stop, which we might do in small size.

15. Semis should continue to perform well as long as actual CAPEX keeps pace with expectations. 3Fourteen Research shows that MAG 7 CAPEX estimates are approaching 3% of GDP. These are insanely large numbers.

16. META’s valuation recently dropped to its second lowest level ever — the all-time low marking the end of its 22’ bear trend. The key catalyst is monetizing its massive compute base: if Meta can rent out spare AI capacity without slowing its own roadmap, investors stop treating capex as vanished cash flow. That reframe alone could re-rate the multiple.

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Thanks for reading.

Your Macro Operator,

Alex

Breadth continues to improve. Short-term sentiment and positioning are elevated and climbing, but not yet at levels that push us into defensive posturing. The longer-duration signals are a different story. The MO Liquidity Tool and BofA’s Bull/Bear indicator both point to a more volatile regime ahead.

Near-term, the path of least resistance is still up. The longer-term picture is another matter.

Crypto is coiled for a run. Global defense names look to have put in a bottom. Plus more.

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MO Portfolio & Trades

1. The portfolio ended last week up +140bps, bringing year-to-date returns to +44%, below our YTD NAV high of +61%.

Current positioning: elevated cash, long Nasdaq, long Russell2k, long biotech complex and cybersecurity names, long GBP.

2. Bonds continue their compression on the monthly tape with BB width at its tightest range since 2018. Compression regimes precede big trends but are directionally agnostic, though our bias is for a breakout to the downside.

3. 10-year TNotes continue trading in their range within a Blended Bear Quiet regime. The direction of breakout will likely determine the near-to-intermediate term direction for the broader equity market as well as the USD.

4. This is a make or break week for the DXY as it should decide whether this breakout holds or ends in a bear trap. The answer holds big implications for the rest of global markets.

5. Last week we highlighted the mean reversion setup in GBPUSD, supported by the record short positioning in Specs. The trade is working nicely so far (chart below is a weekly).

6. SPX continues consolidating its gains off its April lows. The weight of the evidence favors a coming breakout through the upside of its current range.

7. Our Aggregate Breadth Indicator strengthened last week to +3. Major corrections (10%+) occur when this measure falls to 1 or below. This improvement supports an eventual bullish breakout in equities.

8. However, our longer-term measure of liquidity is plumbing new lows. While this indicator can have a long lead of 3-6 months, the lower it goes the lower average forward returns for the market become.

9. This dichotomy in the setup between short and intermediate terms can be seen in the sentiment and positioning data as well. Our Trend Fragility indicator, a composite of short-term sentiment and positioning data points, is at 71% and rising. Still well below the 90%+ threshold for an official sell signal. While BofA’s longer-term measure, is giving a strong sell signal.

10. Our 6m oscillator for net Speculative positioning in the SPX is elevated at 81% but still below the 90th percentile that suggests caution.

11. Perhaps the catalyst for the next move up in risk assets will come from a softening (read: more dovish) tone from the Fed as the Narrative Pendulum swings in the doves favor?

12. We like crypto here. SOLUSD has put in a bear trap on the weekly, and sentiment is coming off the lows (see next chart).

13. From Sentix: “Last week, the sentiment barometer for Bitcoin stood at -34 percentage points. Consequently, we highlighted in our newsletter the counter-cyclical opportunity arising from this extreme in sentiment… The TD Index still stands at -15 percentage points and is ‘cushioning’ prices against a fall. The sharp improvement in sentiment, coupled with a simultaneous rise in bias, carries a second piece of information. This is a sentiment impulse which, according to conventional interpretation, points to the prospect of further price gains.”

14. Global Defense stocks have set up again after correcting over -25% ytd. We like both ITA and SHLD.

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Thanks for reading.

Your Macro Operator,

Alex

The next two weeks are telling for DXY. It needs to hold its recent breakout. If it can’t, and this turns into a bull trap, GBP is the long — positioning there is the most crowded it’s been in history.

Breadth is broadening and diverging higher. That’s not a bearish signal. But there are early signs that volatility is building under the surface, and the next leg up in equities will be a rougher ride than the last.

We close with a full Trifecta setup in the insurance sector, and crypto remains a great short.

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MO Portfolio & Trades

1. The portfolio ended last week up +230bps, bringing year-to-date returns to +42.6%, below our YTD NAV high of +61%.

Current positioning: elevated cash, long Nasdaq, long Russell2k, long biotech complex and cybersecurity names.

2. Bonds continue their compression on the monthly tape with BB width at its tightest range since 2018. Compression regimes precede big trends but are directionally agnostic, though our bias is for a breakout to the downside (more on this below).

3. Last week we made the case for higher rates, eventually… I say eventually because bonds are both short-term oversold, up against major support, and positioning has flipped decidedly bearish (see chart below).

4. I’m watching to see what 10s can do here. I’m willing to play a tactical long on a breakout above this range.

5. The DXY has so far held its breakout (chart below is a weekly).

6. It’s now around 2std overbought across all-three timeframes, while short-term positioning is elevated. The next two weeks will be the tell in whether DXY can hold and consolidate these gains, or this turns into a major bull trap. The answer will have significant implications across assets (ie, commodities, EM, growth, etc…). We are long.

7. If you’re of the mind that DXY is setting up a bull trap, then long GBP offers a nice trade It’s at the bottom of its 15-month+ sideways range/compression regime.

8. Our Spec oscillators on both a 6m and 3y basis are in the 4th and 1st percentiles, respectively.

9. In fact, Commercials are holding their most crowded long positioning in history. The last two times Commercials were even remotely this long it marked a significant bottom in the pound.

10. Our HUD multi-chart page shows that GBP is basically the inverse of DXY right now. It’s roughly 2std oversold across all three timeframes. Seasonality flips positive one week from now. But… yield spread momentum remains low and we’d want to see that flip in order for long GBP to have prospects of more than just a small mean reversion positioning fade.

11. This is a pretty incredible relative flows chart from SG.

12. NYSE A/D Line (in amber) hit a new all-time high last Friday, positively diverging from the index, which typically is not a bearish development.

13. And our friend Dean Christian’s over at TPMR shared this study last week showing that over 75% of cyclical subindustries are in bullish trends on both short and long-term measures. Going all the way back to the 60s, this has occurred only 3.8% of the time, and the SPX has historically seen annualized returns of +10.8%.

14. The path of least resistance remains up. That’s what the weight of the evidence (breadth, internals, technicals) tell us. However, we expect the trend to be more volatile going forward, with frequent positioning induced air pockets. Our resident vol trader, Tony, shared some great stuff on this very topic in this week’s Vol Street Journal. I highly recommend giving it a watch. Here’s some of his summary notes:

This week’s episode examines a series of shifting conditions across my proprietary market models, volatility complex, currency, and credit markets that point to growing market vulnerability. I break down the developments and explain why the risk environment has changed.

• Proprietary Models: Both models have been flashing warning signs for weeks, and Friday sent the EWS model to its highest, most cautionary level since the early days of the Iran conflict.

• VIX Futures: The front of the futures curve is flattening as spot VIX tightens its gap to the July contract and the July-August spread compresses.

• Chronic Undervixing: Realized volatility continues to climb while implied volatility lags, squeezing the variance risk premium as individual stock volatilities rise.

• Positioning Dynamics: Speculators are heavily long the Dow and strongly bought the S&P dip, alongside crowded long positions in the US Dollar and short positions in major cross currencies.

• Credit Market Stress: High-yield and investment-grade spreads are beginning to widen from very tight levels as capital rotates toward Treasuries and equities start to follow high yield bonds lower.

15. Been tracking this one for a while now and it looks like it’s finally tee’d up. The SPDR Insurance ETF (KIE) has put in a bear trap reversal within a major compression regime on the monthly. Its relative performance versus the SPX is coming off all-time lows, even below levels hit during the 09’ bottom. We will likely be getting long this ETF along with some select names.

16. Here’s the Koyfin holdings breakdown for it. The top 1-month performing names are BWIN, OSCR, SKWD, and RYAN. OSCR is my current favorite.

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Thanks for reading.

Your Macro Operator,

Alex

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MO Portfolio & Trades

1. The portfolio ended last week down 230bps, bringing year-to-date returns to +40.3%, below our YTD NAV high of +61%.

Current positioning: elevated cash, long Nasdaq, long Russell2k, long select biotech, and cybersecurity names.

2. Bonds continue their compression on the monthly tape with BB width at its tightest range since 2018. Compression regimes precede big trends but are directionally agnostic, though our bias is for a breakout to the downside (more on this below).

3. The DXY finally broke out from its 12m+ rectangle last week. I think this breakout will hold, but one thing that makes me a bit uncomfortable about the trade is that it’s being widely acknowledged and most prime desk reports I read through over the weekend are bullish. We have orders to get long but the current sentiment has me waiting for more technical confirmation before pressing.

4. Rising yield spread momentum is what’s driving the dollar out from its range, similar to the setup in early 21’.

5. What makes me think this breakout will hold is that I expect the positive relative momentum in US yields to continue. Below is our leading yield indicator in red positively diverging from UST 10yr yields.

6. Our market internals derived economic cycle regime indicator (ECRI in blue) is also strongly diverging higher after breaking out of its multi-year sideways range, indicating that we’re entering a new economic regime. One that will necessitate higher yields.

7. The best central banker is the 2yr yield (in red). It’s telling us that the Fed is going to need to hike…

8. Both Real Retail Sales (top chart) and the Dallas Fed’s Weekly Economic Index (bottom chart) have jumped to multi-year highs. Similar to our ECRI, the economic data is increasingly pointing to a new regime marked by accelerating growth and sticky inflation.

9. This is all largely driven by the massive AI CAPEX cycle in the US, which is why relative growth, rates, and the DXY should continue to move higher over the coming quarters (charts from BBG’s Simon White).

10. The other week I shared two charts showing China’s tightening financial conditions and negative credit impulse. So I was surprised to see in my study over the weekend that China’s Citi Economic Surprise Index (blue line) is near its highest levels since 21’. Has the bearish China narrative pendulum swung too far? If so, this will have big implications on global inflation and rates.

11. In the meantime, it’s starting to look like the labor market is turning a corner… Below on the top chart is the BLS’s Labor Breadth Diffusion on a 1m (amber) and 1y (tan) basis. And the second chart is from Citadel Securities which writes:

“From a markets perspective, we think this outlook is validated by our macro framework, in which we decompose moves in broad macro markets into their macro drivers (Growth and Policy). The framework implies that the performance of risk assets is largely offsetting the sell off in front end rates and policy pricing sits at just +0.48 st deviations, in the 58th percentile of its 5y history, implying there is plenty of room to price a more hawkish policy pathway.”

12. Again from Citadel: “We see a growing risk that the US inflation process is shifting toward a hysteretic equilibrium, in which more sustained price pressures may persist even after the initial energy shock fades. We think the near-term boost to headline inflation from higher energy prices, together with renewed supply-chain disruption, is likely to catalyze second-round effects at a particularly vulnerable point in the cycle, as a temporary price shock collides with our expectation of a positive output gap, easy financial conditions, a generational AI capex cycle ($0.75tn in 2026, $1.25tn in 2027), and a reaccelerating labor market. In that context, an unwind in oil prices may not be sufficient to offset the broader chain of events driving the inflation process.”

13. If you’re looking for evidence that the floor on inflation is shifting structurally higher, look no further than the chart below showing the Fed’s Acyclical Inflation index (amber) above their Cyclical Inflation (grey) for the first time since 2021.

Real yields have flipped negative again, meaning that the Fed is effectively easing by keeping rates steady. With growth accelerating, the labor market turning a corner, China starting to positively surprise, and the floor on inflation now higher, interest rates are going to have to rise.

14. This week we enter the seasonal weak period of “June Swoon” that ends at the start of July. I don’t have strong conviction on the short-term path, though my bias is higher and if we get a swoon, I expect it to be short-lived. This market looks to me like it wants to trade up and we likely see it punch through 8k in a Summer rush — though watch rates, as they could end the party early.

15. Aggregate Breadth remains at +2. Not incredibly strong, nor terribly weak. But enough to confirm the current bull trend (sell signals trigger at readings of +1 and below.

16. Internals continue to support the primary trend higher.

17. I’m in the process of training an AI to create a summary positioning & sentiment report off the dozen or so IB reports I read each week. Below is a snapshot of this week’s summary. The current sentiment backdrop is this: long term it’s stretched and indicative of what we typically see in the runup to a cyclical top, intermediate term its stretched as indicated by the BofA Sell Signal and retail flows, but short-term 0-2 months is where the market still has some room to turn up the heat a bit more.

Our Trend Fragility Indicator is at 63%, which is neutral. Small traders loaded up on puts these past two weeks making it one of the highest proportions of hedging in 25yrs. And while HFs are starting to finally crowd in, they’re doing it mainly by closing out shorts.

All in all, the sentiment and positioning backdrop is pretty bearish and we’re setting up for what will likely be a significant corrective period. But my low conviction base case is that we go parabolic first.

18. On that note, AAII Retail Cash Allocation has fallen to the bottom decline. File this under our longer-term positioning data points. Historically forward market returns 3-6 months out tend to be pretty poor.

19. So I’m thinking we climb a bit further here, maybe take out 8k in the SPX before rolling over into a correction for the rest of Summer inline with the seasonal midterm tendencies, setting things up for an Autumn rally maybe?

20. Our team is turning increasingly bullish on biotech. It’s at the bottom of its Capital Cycle. Sentiment and positioning are very low while industry wide fundamentals are starting to shift upwards — not to mention we expect the sector to be major beneficiaries of AI tech, specifically in the discovery process.

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Thanks for reading.

Your Macro Operator,

Alex

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MO Portfolio & Trades

1. The portfolio ended last week down 330bps, bringing year-to-date returns to +42.3%, below our YTD NAV high of +61%.

Current positioning: elevated cash, select beaten-down software, healthcare, and cybersecurity names; short ETH; long gold miners; long the Bloomberg Commodity ETF; a handful of idiosyncratic equity positions.

2. Will keep posting this one weekly as it’s one of the most important setups in macro right now and is gearing up for a big move.

3. Our 26 week positioning oscillator is climbing up from below the 10th %tile, showing crowded bearish positioning and giving us a long setup to play for reversion back to the middle of its compression regime.

4. Similar to long bonds, the DXY chart is one I’ll keep showing each week until we get a breakout. Last week I pointed out that yield spread momentum and positioning were similar to the conditions that preceded the 21’ rally in USD. We’ll see if a budding speculative frenzy in the US can catalyze a bullish breakout from this range.

5. If even half the points in this Iran-US draft deal circulating on Iranian state media are real, it amounts to total US surrender. Trump wants out. Midterms are the focus now(link here).

6. Crude getting smoked on the news. And no surprise, the specs who we faded at the lows around the turn of the year find themselves completely offsides once again. It’s almost like there’s something to this positioning thing.

7. What’s going on in China? China’s Financial Conditions Index is falling to levels not seen outside of COVID.

8. Credit impulse is back in negative territory and trending lower. Historically, this has been a strong lead indicator for commodities, particularly industrial metals. The AI buildout may make that relationship more spurious going forward. We’ll see.

9. I flagged this chart at the start of the year: NYSE FINRA Margin Debt was elevated at 35% YoY but still shy of concern territory. It’s now approaching that threshold. On a margin balance-to-currency basis, it’s at dot-com highs. On a YoY basis, it’s risen to 53%. An official sell signal triggers above 60% then reversing below 50%. How fast we get there depends on the market path — but with midterms in November, I’d expect the administration to pull out all the stops.

10. Nomura’s Charlie McElligott on the MAG7 becoming funding sources for the next leg of the AI trade:

As somebody who is “medium horizon” (next two-three quarters) constructive on AI Capex trickle-down and US Equities (Earnings Growth Tailwind broadening out from the Capex boom uplift i.e. Manu mini-renaissance), the LOCAL issue I see for US Equities Index now is that we almost certainly CANNOT resume making new highs without the Mag7 Hyperscalers doing the heavy lifting, as they’re simply “too big” and matter too much, particularly with regard to 2^nd order impacts on both “Real and Synthetic” Negative Gamma forces in the market (i.e. the recent pro-cyclical “Spot Up, Vol Up, Crash Up” regime via Options Upside Call demand and Leveraged ETFs) which HAD propelled us higher in what HAD been a 3 Sharpe 3m move

• So how is it that now Hyperscalers have tilted into what I believe to be a broad Equities market HEADWIND? It’s really two-fold:

• In some ways, the Hyperscalers and big Semis / GPU -plays are now closer to acting like the FUNDING SHORTS in the maturation in this “AI Trade” phase-shift…as the opportunistic Longs have moved OUT OF the “Perpetual Capex Spend Arms Race” and first-order “Winners”…and instead, down the stack into the “Bottlenecks” of Memory, Silicon, Infra, Servers, Networks, Robotics etc…in other words, Hyperscalers and Semis are increasingly looking like “Source of Funds” in the trade

• But in addition to this aforementioned phase-shift / maturation of the AI Trade…I have to pound the table on the point I made Sunday night in the email, which is this idea too that the Hyperscalers are at the core of this potential paradigm shift in “Supply > Demand” in Stocks, AWAY FROM what had been the virtuous 15+ year “De-Equitization” -period for US Stocks, where the Float had been shrunk and Vol was suppressed as a massive tailwind for Stocks on account of the unprecedented “Demand > Supply” flow realities this created via “Buybacks + Cash M&A > Issuance”

• But now into this new world order of what feels like as “Exponential” Capex funding needs, Cash is being burned through at “known unknown” rates of speed vs Spend plans, which is then not only endangering the “Flow” of the Stock Buyback “Demand”...

• …While at the same time, we have this “Supply Overload” issue: Not just the overall Equities issuance “Cannibalization” risk of more need for “Funding” via the sheer $size of the tectonic Mega Tech / AI -linked IPO calendar coming in a tight window, which is why there’ all eyes on how SPCX takes Friday and thereafter…but critically too, the Hyperscalers’ OWN SUPPLY from issuance now acts like de facto “Overwriting” of themselves (as if they were selling Long-Dated Calls), with the risk of “Issuance Overhead” helping to further “Kill Off” the “Spot Up, Vol Up” residuals, after last week’s massive GOOGL $85B ATM offering, and the ensuing reports that META would be looking at potentially doing the same

11. One of the structural tailwinds for US equities has been net share cannibalization — US companies have been buying back more shares than they issue, creating persistent demand against a shrinking float (more on that here). That dynamic just flipped positive for the first time since 2021, and with the coming wave of mega IPOs and megacap issuance, it’s likely to stay that way for the next 12 months. A structural tailwind is now a headwind. (Chart via BBG’s Simon White.)

12. Expected operating margin growth is running well ahead of revenue expectations — the market is front-loading a lot of AI-induced productivity. That’s a crowded bet.

13. Simon White shows how elevated earnings expectations tend to mean-revert as we move through time.

14. Again from Simon, this is a great chart…

15. This is an interesting study from our friend Dean at TPMR (link here). He writes “The S&P 500’s three-year rate of change recently peaked above 84% and currently stands at 72%. Readings in this range have historically been associated with below-average annualized returns, as shown in the table below. However, I would note that shorter-term readings continue to reflect positive momentum, which is generally bullish.”

16. So things are getting frothy, sure. But interestingly one of our favorite intermediate term indicators of retail speculation, the STAXX index which measures millions of actual retail positioning and flows, while elevated, is still below the 60% threshold that tends to mark speculative peaks. Like margin data, we’ll likely see this signal trigger in the coming six months.

17. The Qs held their breakout level last week. We are long.

18. SII is a geared play on a structural bull market in precious metals and critical materials. AUM is already compounding off gold, silver, uranium, copper, and energy transition themes. If you believe in currency debasement, central bank gold buying, and capex-light green/AI infrastructure buildout, Sprott’s platform gives you a clean way to express that view — with growing fee streams and dividends. It’s teeing off its lower weekly band and 200dma.

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Thanks for reading.

Your Macro Operator,

Alex

Near-term path: low conviction in either direction. A new BofA Sell Signal just triggered, and our Liquidity indicator remains well below 50%, which has historically weighed on forward 3-month returns. We’ll let the tape lead. Separately, our crypto shorts saved the book last week. We took partial profits near Friday’s close. BTC and ETH are sitting at significant support and deeply oversold — how they react here matters. We also pitch two equity names on our target list.

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MO Portfolio & Trades

1. The portfolio ended last week up +80bps, bringing year-to-date returns to +45.6%, which is below our YTD NAV high of +61%.

Current positioning: elevated cash, select beaten-down software, healthcare, and cybersecurity names; short ETH, BTC, SOL; long the Bloomberg Commodity ETF; long solar; a handful of idiosyncratic equity positions.

2. The short crypto trade that we’ve been writing about — and participating in — for the past month, saved our book last week with our short ETH, BTC, and SOL trades making up for our losses in equities. We took partial profits near the close on Friday and now have some tough trade management decisions to make. ETH is at its lower weekly band as well as multi-year support along the significant 15k level.

3. RSI on both weekly and daily timeframes has dropped to historically significant oversold readings.

4. There have been seven instances (including last week) when the daily RSI fell below 20. In four of them, ETH was trading higher 50 days later, with an average gain of +25%. .

5. We’ll see how the crowded long CoT positioning shifted when Friday’s updated report drops. Sentix’s BTC Sentiment index is near its lowest reading in two years.

6. If you’re not reading Mike G’s weeklies, you’re missing out. His latest covers the chart below alongside a study on gambling and neuropsychology — a real banger (link here).

On the chart: we closed our NQ long last week out of respect for risk management. I don’t think the trend is over — strong momentum tends to beget more momentum — but my conviction is low. What I do have increasing conviction on is that we’re late cycle. I’m seeing it in our long-term positioning metrics, in the technicals, and now in macro data flagging a late-cycle Overheating regime.

This isn’t immediately actionable. Late cycles can persist for months, even years, which makes them among the hardest regimes for our style to navigate. The good news: there are better opportunities outside the crowded AI trade. We’ll continue to play the trend with tight risk, but most of our focus is shifting elsewhere.

7. From @sunchartist, a technician I respect:

“Semi’s have all the hallmarks of exhaustion throwover. The exponential rally is more pronounced on the Weekly charts. Last week formed a bearish inverted hammer reversal on higher volume, with the highest RSI reading on record. If this is indeed a trend reversal or establishing a higher trend channel, we are about to find out.”

8. Historically, when weekly RSI on semis climbed above 80%, it preceded higher prices over the subsequent 13 weeks on average — before rolling over. In 5 of 5 instances, semis traded lower over the following 35 weeks, with an average forward 50-week return of -12.76%.

9. Here’s @spotgamma on Friday’s action:

“When someone answers “What do you think triggered the big stock market selloff Friday?”

They will come up with a large list of narratives, none of which mention positioning: People were choking on calls on Thursday, and purging all those calls on Friday.

ex: $SMH (pink) went from top right on this chart on Thursday (calls priced higher than puts in the +90% %’ile), to puts and calls being equally valued (i.e. center of chart).

Then look at how expensive QQQ options were INTO the Friday vs SPY (Y axis). Tech heavy Qs were massively overvalued related to SPY as everyone over-FOMO’d tech.

Positioning needed a reset.”

10. A few weeks ago we wrote about the coming tidal wave of new equity supply from mega IPOs and its historically bearish implications for equities over the following 12-24 months (link here).

Alphabet’s recent $84.7 billion equity raise adds a new data point. Cash-rich giants don’t sell stock — they buy it back. When Alphabet reversed a two-decade pattern to externally finance an AI build-out, it echoed a familiar sequence: a serial cash-returner pivoting to fund a demand-boom capex cycle. History has not been kind to that pattern. Telecom/fiber in 2000: -18% twelve months later. Energy in 2008: -31%. Four of five analogs since 1929 saw the S&P lower a year out, with mean forward returns of -17% at 12 months and -25% at 24.

The caveats are real: these tops took time to form (returns were flat-to-positive at 1-3 months), the sample is small (N=5, judgmentally dated, with 2014 shale a clean outlier), and capex itself has been priced for two years. Read this as weight-of-evidence, not a tradeable signal. The tell isn’t the surge in capex. It’s how it’s now being financed.

11. Another BofA Bull/Bear Sell Signal fired last week while our Trend Fragility indicator climbed to 76%, unphased by Friday’s selloff. Again, my bias is that markets trade a bit higher in the short-term (low conviction on this one) but I think we’re setting up for a larger Summer selloff.