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MO Portfolio & Trades

1. Portfolio rose 10bps on the week, sitting at +37.5% YTD. This is a wait-and-see market — and we need to do more of nothing.

Still running high cash. Core book: long RTY, long silver, long gold miners, long BBG Commodities ETF, long Dec Brent, long 2y USTs, plus a couple idiosyncratic equity names.

2. We have a starter long in cocoa. It’s setting up in a tight compression following a deep Bear Volatility regime SQN reading — which tends to mark bottoms.

3. Positioning and sentiment are crowded short, while the tape is deeply oversold. We’ll be adding to this long on a confirmed volatility breakout (VBO).

Trifecta Charts

4. Our Trifecta Lens fell back to -2 last week. Combined with severely depressed liquidity readings, the message is clear: best case, we chop sideways from here. A move to -3 or lower signals a likely cyclical top is in.

5. Durable bottoms need breadth thrust confirmation — a big, fast reversal in investor behavior. That may still come. But we haven’t seen any thrusts yet.

Tony — our resident vol expert — breaks down why this rally was hedge-unwind driven: a collapse in implied correlation, not individual stock vol. That trade is largely done. Implied correlation is back to normal, the next leg lower needs individual stock vol to drop, and with earnings ahead and the war still live, that’s unlikely. VIX stalls in the high-teens, VX curve stays flat, equities lose a key fuel source. Full weekly vol rundown here.

6. Our combined Aggregate Breadth + Thrust indicator is now at +2 and falling. Lowest reading since last April’s Liberation Day selloff. If this number doesn’t materially improve, odds are rising that we’re putting in a cyclical top.

Macro

7. Our Leading Inflation Indicator (amber line) is starting to hockey stick higher — now at its highest level since 2023.

8. BBG’s Simon White shows China’s input prices PMI, advanced 6 months, has also risen to multi-year highs and is still climbing.

9. Despite this, longer-term inflation expectations remain anchored.

A few reasons for that: (1) labor markets remain weak, wage growth keeps falling; (2) the market is looking through the supply shock and pricing the coming demand shock of higher energy/food prices hitting an already anemic consumer; and (3) the market may still be too optimistic on a near-term resolution to this war.

10. From GS: “Since the start of the conflict, 5y5y traded inflation has declined slightly despite the large repricing in the near-term inflation path. While it’s reasonable that markets would price a supply shock as a one-off boost to inflation, we think that has been reinforced by the comparative stability in longer-dated oil futures, which have meaningfully lagged their typical beta to the front-end of the oil curve.”

11. Last week we talked about the DXY and its 12-month sideways range. Still watching for a setup — breakout above or below. My bias is lower. I’m willing to take small swings short at the top of this range. State Street shows the USD’s domestic bid losing steam.

12. Paulsen put out a great post last week (link here) making the case for slowing US growth. His geo-weighted index of 10yr USTs and real USD, inverted and advanced 3 months, is pointing to negative economic surprises ahead.

13. Same picture when you add oil. Paulsen’s not calling for growth falling through the floor — just that already-slow growth continues coming in lower.

14. Atlanta Fed’s GDPNow is at its lowest level since the Liberation Day selloff, and falling fast.

Trade Setups / Topical Charts

15. The AI trade is nowhere near over. @WarrenPies:

“As the Iran War has ebbed and flowed, GPU availability for B200s has collapsed to zero...H100s close behind. Whatever happens with the war, the AI complex is likely to lead any true sustainable bull market. Unsurprising to see SMH less than 1% from a new ATH.”

16. Semis (SMH) continue to lead the charge.

17. I’m turning more bearish on crypto — but I think we likely see a counter-trend rally first. Sentix noted this past week that Strategic Bias is signaling a likely intermediate bottom in BTC:

“Against a backdrop of bearish sentiment, Bitcoin managed to defend its price level just below US$70,000. So far, so good. However, this negative sentiment has now subsided. At the same time, nothing has been achieved in technical terms. The oscillating movement that has persisted for weeks is, so far, consistent with a consolidation within a downtrend, and neutral sentiment often marks the end of such a consolidation phase. However, something noteworthy is happening on another level. Medium-term underlying confidence is rising significantly, and more sharply than the recovery in sentiment. This therefore reflects a new willingness to build positions that goes beyond simply covering short positions. The $76,000 mark could therefore be tested. But only once prices move above this resistance level would the chart picture be viewed more constructively.”

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Thanks for reading.

Your Macro Operator,
Alex

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MO Portfolio & Trades

1. Portfolio fell -136bps on the week, sitting at +37.39% YTD. Getting chopped around more than we should be. This is a wait-and-see market — and we need to do more of nothing.

Still running high cash. Core book: long silver, long gold miners, long BBG Commodities ETF, long 2y USTs, short cotton, plus a couple idiosyncratic equity names.

2. We took profits on CENX last month, but decided to take another swing at the aluminum trade — adding Alcoa (AA) to the book last week following its recent breakout. An Iran/Hormuz closure starves bauxite and alumina shipping lanes, spikes global energy costs, and crushes smelting capacity for energy - import-dependent competitors. AA, powered by cheaper domestic grid power, takes share. Meanwhile, the defense and aerospace procurement surge that follows any Gulf escalation is aluminum-intensive — front-loading demand exactly when supply is most constrained.

3. This is one of the more important macro charts to keep an eye on. DXY continues to coil near the upper bound of its 12 month sideways compression/rectangle pattern. Short-term positioning got ahead of itself, and is a near-term headwind, but longer-term positioning is still muted. We’re agnostic on direction and will play a move in either direction.

Trifecta Charts

4. Ding ding ding. Our Trend Fragility indicator — a composite of sentiment, positioning, and flows — fell to 19% last week, triggering a conditional buy signal. Past signals marked by green vertical shading.

5. Our friend Dean Christians flagged this in a recent note: the 7-week Bull-Bear spread in the Investors Intelligence survey has “fallen dramatically to -43.5% — the largest decline since the COVID crash, occurring in fewer than 1% of observations since 1971.” Historically, extreme readings like this have preceded sharp reflex rallies, with SPX generating annualized gains near 30% when the spread falls below -43%. Classic contrarian setup.

6. Our Aggregate Breadth Indicator continues to chug along at +3 — a solid reading. Points to recent market weakness being more about rotation than broad distribution. At least for now.

7. The Liquidity gauge, however, hit the floor last week — 0% reading, now sitting at 7%. Red dots mark past instances when this gauge first crossed below 5%.

All of the above keeps telling me: at best, we’re in a larger sideways volatile regime — and likely a cyclical topping process — that plays out until we start seeing cracks in the labor market.

8. We have conditional buy signals from TF and sentiment surveys, but we never saw true capitulation. The kind that marks an enduring low and gets followed by breadth thrusts.

That said, we’ve probably seen enough for a short-to-intermediate bottom. My working assumption: SPX chops in a ~700-point range between the recent 6,300 low and the 7k high.

9. If you haven’t read Mike G’s latest note yet, do it — the full piece is on the Collective site, excerpt on Substack here. He’s watching the Russell closely: “More interesting to me in the equity world is the Russell, which has held its tight price compression right at the convergence of its 200EMA and multi-point trendline.”

Macro

10. Who leads matters. Dean Christians again — this time on why energy leading the charge isn’t a great sign: since 1950, the S&P 500 has returned just 1.12% annually during periods when energy led, versus an all-period average of 8% (link here).

11. Short-term, flows into energy are large and positioning looks a bit overcooked — sector is likely due for a breather. But as State Street recently noted, positioning relative to historical averages is still far from crowded. It’s coming off a very low base.

12. Updated US Price Stats YoY% from State Street. Inflation is about to rip. The question is how much the Fed chooses to look through supply-disruption-induced inflation — watch the upcoming minutes for any signal.

13. Earnings estimates have held up, but the longer the Strait stays partially closed, the more it squeezes an already stretched consumer through higher energy costs.

14. From BBG’s Simon White…

Trade Setups / Topical Charts

15. Aerospace & Defense names are oversold within a broad uptrend (chart via @RenMacLLC.

16. Rheinmetall (RHM) was one of our big equity winners in ‘24. It’s been consolidating those gains in a sleepy sideways channel — and just reversed off the lower bound on the weekly. RHM is the purest expression of European rearmament at the exact moment a Gulf escalation makes NATO’s 2% GDP floor look politically untenable as a ceiling. Germany and Poland are tracking toward 3-4% trajectories, and RHM is the primary domestic prime contractor for both. The FX tailwind is underappreciated: Euro fiscal expansion strengthens EUR while RHM’s DM revenue base drives simultaneous earnings and multiple re-rating.

17. Mr. X and I are doing another interview soon — updating on Iran, but also covering China and Taiwan. Conviction is building that China moves on the island within the next 18 months.

One pair trade I’m considering: long INTC / short TSM. Relative performance looks to be turning after a mostly one-way trade for the past decade. More on this for the Collective soon.

18. INTC on the weekly and daily. Likely adding a small starter long. INTC’s value as an indispensable strategic asset is going to become more self-evident as markets wake up to the fact that the global order is dead and Taiwan is not in our sphear-of-influence…

19. Crypto is nearing a make-or-break point. All major pairs compressing in a tight bear flag. The weekly SOLUSD chart shows a large completed multi-year H&S top. My bet is this resolves lower and crypto enters a devastating bear. But we’ll see — as always, we’ll let the tape tip its hand.

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Thanks for reading.

Your Macro Operator,

Alex

QOTW: “The market’s consensus seems to be that 30-50% of Gulf energy infrastructure getting wiped out will have zero lasting consequences. No plastics shortages, no fertilizer crunch, no chip supply issues from helium depletion. The tail risk is so catastrophically bad it can’t really be priced — so the default is just buy the dip and pray everything goes back to normal.” ~ anon

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MO Portfolio & Trades

1. Portfolio fell -234 bps on the week, sitting at +38.76% on the year.

Still running high cash. Core book: long HRW Wheat, long sugar, long corn, long silver, long BBG Commodities ETF, plus a couple of idiosyncratic equity names.

2. BBG Commodities Index ETF (BCI) is flagging and setting up for another add.

3. SolarEdge Technologies (SEDG) is a new addition to our book. It recently completed a 12m+ Cup-n-Handle. Solar remains a deeply unloved sector of the market, while the Iran conflict is highlighting the growing importance of energy security. Brandon did a great write-up on solar in his latest report, which Collective members can find hung up in Slack.

4. A few weeks ago, I pointed out how the massive March 20th quarter OPEX ($1.3trn in delta notional), along with the equally large JPM collar trade on the SPX that expires March 31st, had been keeping the market pinned in a tight trading range (one of its narrowest year-start ranges in over 20yrs).

My teammate and MO resident Vol expert, Tony, discusses this idea in length in his latest Vol-Street Journal video (link here). He flags two things worth highlighting: SPX and NDX are both breaking out of their compression regimes on the daily and weekly — and doing it with real momentum. He’s also been watching VIX futures track spot VIX much more closely than they did at the start of the war, which he reads as vol traders not pricing in a quick reversion.

SpotGamma recently made a similar point, writing: “The role of dealer positioning sits at the core of the market’s regime shift. To put it simply, the stabilizing force of positive gamma is now absent.

“We remain firmly in a negative gamma environment, where dealers hedge with price action—selling into weakness and buying into strength. This flips the market’s behavior from mean-reverting to momentum-driven, increasing the likelihood of any sharp directional movement.”

This is important. Expect larger moves going forward.

Trifecta Charts

5. Getting closer… Trend Fragility fell to a reading of 22% last week. Need a cross below 20% to give a conditional capitulation signal.

6. And still no signs of a washout from our Capitulation tab.

7. One bright spot in an otherwise bleak backdrop is our Aggregate Breadth Score actually rose one point last week. This is because this indicator also includes various divergent measures of breadth, as well as nominal.

My base case is that we’re forming what will become a larger, volatile sideways range, which may become a much larger cyclical top depending on how things progress on the geopolitical front.

Macro

8. State Street’s PriceStats MoM% index shows that inflation is going to become a real problem if the Strait isn’t reopened soon.

9. More importantly, if we don’t see resolution soon, recession risk starts getting priced in. Central banks are laser-focused on wages becoming the next inflation problem — but the labor market may not even be strong enough to get there. Meanwhile, unemployment has appeared stable on the surface, but household sentiment tells a very different story. The latest Michigan survey shows unemployment fears at recession-level readings (chart via State Street).

10. From BBG’s Simon White: “A splintering in increasingly fragile sentiment has the capacity to rapidly induce a recession, forcing an abrupt repricing of US rates. Recessions are born on negative feedback loops developing between hard and soft data. Hard data is rising; if soft data also deteriorates past a certain point, then recession risk will rapidly increase.”

Trade Setups / Topical Charts

11. The DXY is consolidating near the upper-bound of its 15-month rectangle pattern, as it caught a geopolitical risk premium bid this past month, which hit when bearish USD sentiment had reached a consensus. With US yields breaking out, we may see DXY follow. We’ll get long on a confirmed breakout (chart via Fidelity).

12. Earlier this month I pointed out the record long Spec positioning in long bonds, along with the bearish technicals giving us a solid short setup. This trade has played out nicely. Now, we have record-short positioning on the front end, along with deeply oversold levels across all timeframes. This move looks overdone to me, as the longer energy prices stay high, the greater the odds of a reflexive recession kicking off.

13. 2s have put in a double bottom on the daily. We’re taking a swing at getting long.

14. Last week, we started dipping our toes in on long spot silver and gold miners. This is a small tactical trade as we test the waters. But there is evidence that we’re getting nearer to a bottom.

SentimenTrader’s Optix crossed below 20 last week. Gold was higher 12m later 89% of the time.

15. Idaho Strategic Resources (IDR) continues to be one of our favorite plays in this space, as it’s one of the few junior gold producers actually making money — strong cash flows, with a clear production ramp ahead. The stock’s cheap on gold alone, but the market is completely sleeping on what could be a massive rare earths + thorium play at Lemhi Pass. Collective members can find Brandon’s write-ups on IDR going back to 23, when he first started pitching it.

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Thanks for reading.

Your Macro Operator,

Alex

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​​​​​​​MO Portfolio & Trades ​​​​​​​

1. Portfolio fell -150bps on the week, sitting at +41.3% on the year.

Still running high cash. Core book: long crude, short EM, long HRW Wheat, long sugar, long corn, long BBG Commodities ETF, plus a couple idiosyncratic equity names.​​​​​​​

​​​​​​​2. Two weeks ago I flagged the developing double-bottom in sugar — Trifecta setup with sentiment, macro, and technicals all lining up. Last week confirmed the bottom and it’s off to a nice start. We’re long. ​​​​​​​

3. Back in early March we wrote about record Small Spec longs in UST bonds syncing up with a bearish technical picture — good short setup. We took profits too early and it kept running. It’s nearing larger support now, so we’ll see how it reacts. Still in a larger compression regime and increasingly looks like this could just be the beginning of a much bigger move lower.​​​​​​​

​​​​​​​Trifecta Charts

4. Trend Fragility getting closer to a conditional bottom signal, but we’re not there yet. As we saw in ‘22, this condition can persist. Patience. ​​​​​​​

5. Worth keeping an eye on internals — they should lead or at least confirm any real bottom. Starting to see some potentially constructive action in Discretionary vs. Staples, Cyc vs. Def, High vs. Low Beta, and SMH vs. SPX. Too early to call anything, but worth watching.

6. Aggregate Breadth Indicator fell to +2 last week — first time since the Mar/Apr 2025 selloff. Not great. If breadth can’t hold here, we’re probably in the early stages of a larger move lower.. ​​​​​​​

7. Russell 3k % of stocks above their 50 and 200dma are still well above washout levels (sub-20%). Bottom line: equities selling off, bonds dumping, credit spreads widening, and we still haven’t hit washout conditions. Hold cash, trade little. ​​​​​​​

​​​​​​​Macro ​​​​​​​

​​​​​​​8. From BofA…. ​​​​​​​

9. From @SubuTrade: “Cash allocations at 14.19% — investors holding the least cash in 4 years. This happened 3 times in the past 20 years: late-2017, Jan 2020, late-2021. Each preceded significant volatility and losses.” This checks with the FINRA Margin Debt data we shared last week.​​​​​​​

10. From BBG’s Simon White: “The commodity market’s view on the financial impact of the Iran war errs more bearishly than equity and rates markets. Commodity traders need only be half right on their current outlook for stock and bond pricing to be very wrong.” Worth sitting with. ​​​​​​​

​​​​​​​Trade Setups / Topical Charts

​​​​​​​11. Not seeing anything I love right now, but keeping a close eye on precious metals. Still one of our favorite multi-year trades — we haven’t even entered a classic PM bull market yet. ​​​​​​​

12. Silver is off nearly 50% from highs and approaching support. How it reacts here will be telling. ​​​​​​​

​​​​​​​Thanks for reading.

Your Macro Operator,

​​​​​​​Alex

​​​​​​​MO Portfolio & Trades ​​​​​​​

1. The MO portfolio gained +280bps on the week and sits at +42.88% on the year.

​​​​​​​We continue to hold elevated cash. Our core positions: long crude, short USTs, short NQ, long HRW Wheat, and long the BBG Commodities ETF.

2. Two weeks ago we flagged the bearish setup in the long end of the curve (link here) — that continues to play out. Last week we went short 2s on their bearish breakdown from a tight compression regime, following a bull trap the week prior.

​​​​​​​Fed meeting this week. We’ll adjust fire as needed.

3. We started last week short the Qs and added to the position as the week progressed. They’ve since closed below key levels on the daily and are now trading under their 200dma — the tape is confirming the thesis.

Nomura’s Charlie McElligott framed the broader dynamic well:

“The ‘Lazy Leverage’ that accumulated during sustained low vol is now being mechanically risk-managed lower as Commodity/Inflation/Rate-Vol risks simultaneously reprice... because the dirty secret is that every asset class is short interest rate volatility.”

Hard to say it better than that.

​​​​​​​Trifecta Charts

​​​​​​​4. The MO Liquidity Gauge fell again last week to 25% — its lowest reading in three years — and historically, that combination of level and trend bodes ill for forward 3-month equity returns.

​​​​​​​
​​​​​​​5. Our Head Technical Analyst Mike Gyulai’s Quantitative Trend Stability Model recently flipped bearish. In his latest note, Mike walks through what that signal means and how he adjusts his strategy in bearish regimes (link here

6. Still a ways to go until we get to a proper positioning and sentiment reset. ​​​​​​​

7. Retail flows have been the primary force sustaining this market for the past six-plus months. Schwab’s STAX index — which tracks actual retail activity — recently climbed to its highest reading since early ‘22.​​​​​​

8. Meanwhile, FINRA Margin Balance/Currency in Circulation is at an all-time high and straight margin is accelerating on a YoY basis. In any other environment, that would be noteworthy. Given current valuations — and the general state of the world — it’s a striking level of complacency. ​​​​​​​

9. On valuations — HF manager Colm O’Shea recently launched a Substack (link here) and his latest post is worth your time:
​​​​​​​
“Current valuations show the same level of optimism about future earnings growth as the 2000 dot-com bubble — except today’s earnings base is far higher. It is that combination that makes the current setup so extreme. What would earnings growth need to look like over the next decade for your stock market investment to simply keep pace with GDP growth? The chart below shows.”​​​​​​​

​​​​​​​Macro ​​​​​​​

​​​​​​​10. The Institute for the Study of War recently published maps tracking the conflict’s progression. The takeaway: the US is methodically degrading Iran’s drone and missile arsenal — the backbone of its war strategy. Iran is still throwing punches, but they’re not landing with the force an existential conflict requires. There’s more work to do, but writing this campaign off now is jumping the gun.Worth noting — ISW is writing primarily to US military objectives, which aren’t necessarily the same as strategic ones. An important distinction. ​​​​​​​

11. Oil’s impact on CPI via BBG. ​​​​​​​

12. Inflation swaps are starting to hockey stick higher. We were already expecting rising inflation in the back half of the year, but it’s looking less like a forecast and more like a foregone conclusion. ​​​​​​​

​​​​​​​Trade Setups / Topical Charts

13. Coal stocks are the obvious beneficiary if Hormuz stays choked and oil holds an elevated floor. The Global Coal Index ETF (COAL) monthly is worth pulling up — it’s showing a completed large inverted H&S nested inside a broader cup-and-handle. That’s a lot of constructive structure in one frame. The tape is telling a story here.​​​​​​​

​​​​​​​14. I ran through the index to find my favorites. Below are their monthly charts. TGA in particular is intriguing. ​​​​​​​

15. We’re short-term bearish on risk assets broadly, but crypto majors are worth watching. ETHUSD is holding a bid and diverging from general risk — running its own race, essentially. It’s also coiling in a tight compression regime, which means a move is coming. Direction TBD, but this one’s on the radar. ​​​​​​​

​​​​​​​Thanks for reading.

Your Macro Operator,

​​​​​​​Alex

QOTW via @Jesse_Livermore: “Best analogue I can think of for today’s market vibe is the period in mid Feb 2020 bf Covid when the news flow was uniformly negative but people weren’t selling bc they were bulled up on other themes and were scared of missing the uptrend that was set to resume once Covid faded.”

Jesse is spot on. We’re living through a major paradigm shift — multiple, actually — and the market remains deeply anchored to the recent past (as it has a tendency to do, see my AI Micron bull these from back in 2020 to learn why). The vol suppression, BTD mentality isn’t going away quietly. The next 6-12 months could be a very rude awakening.

MO Portfolio & Trades

1. The MO portfolio gained +280bps on the week and sits at +42.88% on the year.

We continue to hold elevated cash. Our core positions: long crude, short USTs, short NQ, long HRW Wheat, and long the BBG Commodities ETF.

2. Two weeks ago we flagged the bearish setup in the long end of the curve (link here) — that continues to play out. Last week we went short 2s on their bearish breakdown from a tight compression regime, following a bull trap the week prior.

Fed meeting this week. We’ll adjust fire as needed.

3. We started last week short the Qs and added to the position as the week progressed. They’ve since closed below key levels on the daily and are now trading under their 200dma — the tape is confirming the thesis.

Nomura’s Charlie McElligott framed the broader dynamic well:

“The ‘Lazy Leverage’ that accumulated during sustained low vol is now being mechanically risk-managed lower as Commodity/Inflation/Rate-Vol risks simultaneously reprice… because the dirty secret is that every asset class is short interest rate volatility.”

Hard to say it better than that.

Trifecta Charts

4. The MO Liquidity Gauge fell again last week to 25% — its lowest reading in three years — and historically, that combination of level and trend bodes ill for forward 3-month equity returns.

5. Our Head Technical Analyst Mike Gyulai’s Quantitative Trend Stability Model recently flipped bearish. In his latest note, Mike walks through what that signal means and how he adjusts his strategy in bearish regimes (link here).

6. Still a ways to go until we get to a proper positioning and sentiment reset.

7. Retail flows have been the primary force sustaining this market for the past six-plus months. Schwab’s STAX index — which tracks actual retail activity — recently climbed to its highest reading since early ’22.

8. Meanwhile, FINRA Margin Balance/Currency in Circulation is at an all-time high and straight margin is accelerating on a YoY basis. In any other environment, that would be noteworthy. Given current valuations — and the general state of the world — it’s a striking level of complacency.

9. On valuations — HF manager Colm O’Shea recently launched a Substack (link here) and his latest post is worth your time:

“Current valuations show the same level of optimism about future earnings growth as the 2000 dot-com bubble — except today’s earnings base is far higher. It is that combination that makes the current setup so extreme. What would earnings growth need to look like over the next decade for your stock market investment to simply keep pace with GDP growth? The chart below shows.”

Macro

10. The Institute for the Study of War recently published maps tracking the conflict’s progression. The takeaway: the US is methodically degrading Iran’s drone and missile arsenal — the backbone of its war strategy. Iran is still throwing punches, but they’re not landing with the force an existential conflict requires. There’s more work to do, but writing this campaign off now is jumping the gun.Worth noting — ISW is writing primarily to US military objectives, which aren’t necessarily the same as strategic ones. An important distinction.

11. Oil’s impact on CPI via BBG.

12. Inflation swaps are starting to hockey stick higher. We were already expecting rising inflation in the back half of the year, but it’s looking less like a forecast and more like a foregone conclusion.

Trade Setups / Topical Charts

13. Coal stocks are the obvious beneficiary if Hormuz stays choked and oil holds an elevated floor. The Global Coal Index ETF (COAL) monthly is worth pulling up — it’s showing a completed large inverted H&S nested inside a broader cup-and-handle. That’s a lot of constructive structure in one frame. The tape is telling a story here.

14. I ran through the index to find my favorites. Below are their monthly charts. TGA in particular is intriguing.

15. We’re short-term bearish on risk assets broadly, but crypto majors are worth watching. ETHUSD is holding a bid and diverging from general risk — running its own race, essentially. It’s also coiling in a tight compression regime, which means a move is coming. Direction TBD, but this one’s on the radar.

Thanks for reading.

Join The Collective

​​​​​​​MO Portfolio & Trades ​​​​​​​

1. The MO portfolio gained +40bps on the week — though that number flatters the experience. We climbed to +41.6% on Tuesday, gave back to +36.3% by Thursday, and settled back at +40% YTD. Plenty of vol in between.

We cut the entire equity book last week. Waiting for clarity, starting fresh. Current positions: long oil futures and calls, long BBG commodity index, long KC HRW Wheat, short T-Bonds, short NQ futures.​​​​​​​

2. Last week we highlighted two Treasury trades — a bullish breakout in the front end and a short setup in the long end. The 2s were a bull trap; we stopped out. Still tracking it closely though, as it remains in a major compression regime. The short in the long end has played out well. It’s short-term oversold and sitting at its lower daily band. We’ll assess on Monday whether to take partials or let it run.​​​​​​

3. Our Lead Technical Analyst Mike Gyulai published a sharp note over the weekend covering the evolution of our long oil trade, among other things worth your time. [Read it here.] We’ve taken partials and continue to trail stops — but we’re still long futures and calls. ​​​​​​​

​​​​​​​4. WTI is in extreme backwardation. Historically, that’s a signature you see at or near oil tops and it tends to bode poorly for forward returns. That said, we’re operating in an unusual, event-driven environment — basic historical comparisons need a helping of salt here (chart via @jaykaeppel).

We’ll be watching to see whether long-dated futures catch up to the front end (bullish) or if the front end catches down (bearish). ​​​​​​​

​​​​​​​Trifecta Charts

5. Some notable action in our core models last week, working counterclockwise from the top left:
​​​​​​​

Aggregate Market Internals saw a big jump WoW — still at a weak level though, but worth watching. Trend Fragility (our sentiment/positioning composite) dropped to 51% — a buy signal triggers on a cross below 20%. Our Trifecta Lens Score fell to -2, a level that historically precedes chop and downside vol in the indices. And our Liquidity Gauge collapsed to 39%, a level that historically points to poor forward 1-3 month returns.

6. Last week, I shared the double-channel chart on ES-mini, suggesting a likely breakdown from its 2-month sideways range and a selloff toward November lows before a proper washout bottom. Mike G echoed this with NQ — a break below recent congestion gives it a measured-move target of -9%, or roughly 2,200. ​​​​​​​

7. Our base case is not a cyclical top. The primary trend models remain supportive. That said, I think a larger extended sideways range — 6 months or more, volatile — is a real possibility. Either way, we’ll be tracking the Capitulation tab in our HUD to help identify a bottom. ​​​​​​​

​​​​​​​Macro ​​​​​​​

8. PTJ once said every recession since 1970 has been preceded by a 100% YoY rise in the price of oil. Sans COVID, he’s right. Our Energy & Credit Shock Indicator illustrates this cleanly. We’re fine right now — but this thing can move fast. ​​​​​​​

9. LB Macro put out a great post this week on AI’s economic impact so far. Their take: AI isn’t destroying the labor market — at least not yet. What it’s actually doing is something subtler and probably more consequential: reshaping it faster than any prior technology wave. Entry-level cognitive jobs are getting hit. The composition of employment is shifting at a pace that dwarfs previous tech cycles. The destruction is contained for now, but the reallocation is very much underway.​​​​​​​

10. I mostly agree — for now. But we have to maintain real cognitive flexibility here. This isn’t a normal environment, and AI is not your average technological revolution. Charts like the one from JPM below need to be watched and respected. Don’t get complacent. ​​​​​​​

11. Research has shown it’s not the level of inflation that hurts risk assets — it’s the volatility of inflation. This chart from Nomura is a useful reminder: when inflation runs hot, it also tends to run wild. ​​​​​​​

​​​​​​​Trade Setups / Topical Charts

12. We’re in a cyclical commodity bull, and it’s following the standard playbook to a T: Precious Metals → Industrial Metals → Energy → Agriculture. We’re long Kansas City Hard Wheat, missed an entry on corn last week, and are now tracking a setup in Sugar.
​​​​​​​
Speculator short positioning recently hit its most bearish reading on record. Our sentiment indicators are sitting at the 0th percentile. Relative valuation is nailed to the floor. ​​​​​​​

13. I’ve been patient with Sugar — watching the one-sided positioning, waiting for a technical setup and some news failures to confirm. Now we have both.

The October chart shows a double bottom on both weekly and daily timeframes. We’ve had a series of bearish news failures over the past week. And Sugar is heavily influenced by ethanol prices, which jumped last week. We’re looking to get long this week.​​​​​​​

14. On the equity side, Adecoagro (AGRO) surfaced as an interesting way to play this. They operate primarily in Argentina and Brazil — low-cost producer of sugar and ethanol, with significant corn and soybean exposure. Highly sensitive to the No. 11 sugar contract. The stock has traded in an $8 sideways channel for its entire life as a public company. It jumped last week. No trade yet — but I’d be interested on a clean breakout above $11.50. ​​​​​​​

​​​​​​​One more thing before you go.

The Collective is where we do the real work — live portfolio, full model access, the HUD, Mike G’s technical notes, Brandon’s deep value dives, my macro takes, a dashboard of our proprietary tools, and a community of serious investors and traders who are actually devoted to getting better. It’s not cheap, and it’s about to get less cheap. We’re raising prices to keep the community at a size where everyone gets real value out of it. If this resonates with you, now’s the time.​​​​​​​ Enrollment Is Open This Week.

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​​​​​​​Thanks for reading.

Your Macro Operator,

​​​​​​​Alex

​​​​​​​MO Portfolio & Trades ​​​​​​​

1. The MO portfolio gained +90bps last week, helped by our silver and miners longs. It’s now up +39.58% ytd. We’ll see where things open Monday, but I’d expect our long oil calls to be up nicely.
​​​​​​​
If you’d like to join our Collective and have access to our research, tools, Slack, and the team and me, just click here. ​​​​​​​

2. We’ve been stalking this multiple-compression setup in 2-yr T-Notes for months, and it looks like we’ve finally gotten a breakout. We’re already quite long, but we’ll look to add as long as this move holds and the tape stays firm. ​​​​​​​

​​​​​​​3. Last week I reiterated the Trifecta (macro + positioning + technicals) setup in crude, along with the likely positive catalyst of an attack on Iran (link here). We’re heavily long the futures and equities and think this trade has legs. Short-term positioning is shifting fast (26-week oscillator below), but it’s coming off a historically pessimistic base. Seasonality is very favorable, and crude’s relative valuation sits at the 0th %tile.

​​​​​​​Trifecta Charts

4. Our Aggregate Market Internals indicator is in nosedive mode. Not quite at official sell signal levels yet, but it could trip there this week — worth watching closely. ​​​​​​​

5. We still don’t see broad weakness in aggregate breadth, so we can’t turn outright bearish. The full Trifecta picture continues to suggest more chop and vol in the main indices, with risk skewed to the downside. SPX likely retests its Nov ‘25 lows — but this will probably be a grinding move rather than a cascade, as rotation flows and flush liquidity keep other pockets of the market bid. ​​​​​​​

6. Our Trend Fragility indicator has come down to the 68th %tile. BofA’s Bull-Bear climbed last week to a recent high of 9.2 — still well into Sell Signal territory. I expect a full reset in both over the next month or two. ​​​​​​​

​​​​​​​Macro ​​​​​​​

7. AI’s impact on labor, software, credit, and a host of other things continues to be a key market driver. I’m tracking the debate closely. Here’s @WarrenPies’ recent take:
“AI’s impact on the labor market is no longer theoretical. In the most AI-exposed industries, job losses are accelerating — especially relative to pre-AI trend growth. AI-resistant industries continue to add jobs. As the year progresses, expect that wedge to grow.”​​​​​​

8. On these debates, I try to keep an open mind — find the most cogent and honest thinkers on both sides, then track their arguments against the data and what the market is actually saying, while always keeping a pulse on where the Narrative Pendulum sits. Here’s Citadel Securities with a good counter:
​​​​​​​
“It seems more likely that AI will be a complement rather than a substitute for labor in many areas. Historically, technological revolutions have altered task composition rather than eliminated labor as an input. To produce a negative demand shock large enough to overwhelm output expansion, one must assume near-total automation of economically relevant labor combined with extremely weak redistributive responses. To frame this debate correctly, simply ask: was Microsoft Office a complement or substitute for office workers? Ex-ante, the concern skewed toward substitution. Ex-post, it appears a clear complement.”

Here’s the link to the full piece. ​​​​​​​

9. Whichever side ends up being right will have profound implications for markets. The AI-eats-most-jobs scenario is obviously deeply deflationary. The other is potentially quite inflationary. Our models continue to point to falling inflation over the next three months or so, with a potential hockey-stick turn somewhere in the second half of the year. This chart from BBG’s Simon White seems to corroborate that — Truflation (blue) collapsing while his inflation lead (yellow) trends up. ​​​​​​​

​​​​​​​Trade Setups / Topical Charts

10. Honestly, the rally in the long end over the past month has surprised me. Last week, 10s punched through 4% for the first time since October. The AI narrative has been driving it — but in my opinion, the move looks overdone, and the long end looks expensive. Small Spec positioning in long bonds is at its highest level in history, while Commercials hold record shorts. The vertical red lines mark past instances where Commercials moved to large net short positions — it tends to be followed by a significant move lower. ​​​​​​​

11. I’m looking for a potential short here against our long on the front end. The weekly ZB chart shows price reversing off its upper weekly band and downward trendline — a technical ceiling that’s held many times over the past few years.
The long end is also in a major compression regime (pull up a monthly Bollinger Band width chart). Like the front end, this tells us a big move is coming. My bet is that move is lower.​​​​​​​

12. Check out this weekly chart of Moderna (MRNA). It broke out from a 12-month rectangle in mid-January and cleared its recent consolidation last week. Our resident systematic chartist, Mike ,G first flagged the setup on January 17th (link) — also, here’s the link to Mike’s latest. It’s definitely worth a read.

I continue to like biotech. It’s showing solid relative strength. We added JAZZ last week and will likely add MRNA in the coming days.​​​​​​​

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Thanks for reading.

Your Macro Operator,

​​​​​​​Alex

​​​​​​​MO Portfolio & Trades ​​​​​​​

1. The MO portfolio gained +120bps last week, helped by our longs in silver and miners. It’s now up +36.9% ytd, still below its ytd NAV high of +38.6%.

If you’d like to join our Collective, click here.

​​​​​​​2. We will keep covering this one until there’s movement. The 2yr Notes remain the most compelling setup in markets. We have compression regimes within compression regimes. Translation: a big move is coming. We don’t know which direction yet — so we stay ready for both. ​​​​​​​

​​​​​​​3. We are also quite long oil and E&P stocks. This is a Trifecta setup — bearish sentiment and positioning, accelerating global growth, and a potential double bottom bear trap in the chart — and an event trade, as we expect a major Iran strike at some point in the weeks ahead. This event risk can cut both ways, so we need to be nimble on this one.

​​​​​​​Trifecta Charts

4. Breadth tells two different stories depending on which part of the market you’re looking at. Here we have the NYSE A-D Line making a new all-time high, diverging higher from price. And the NYSE New High-Lows Index showing underlying action that’s typical of a strong bull. ​​​​​​​

​​​​​​​5. But tech continues to trade heavy, as shown below with the % of Nasdaq stocks trading above their 200 and 50 day moving averages as just 50% and 49% respectively. Any further deterioration here, and the Qs start rolling over. ​​​​​​​

6. Obviously, the worst of this weakness has been concentrated in the Software sub-industry. The chart below shows the S&P 1500 Software sub-industry group vs. the SPX. As you can see, the past few months have been one of the most dramatic periods of relative underperformance on record, with the daily RSI hitting its lowest level ever and the weekly its second (97’ being the worst).

Your instinct says mean reversion — big underperformance like this should snap back. But history disagrees. Average forward 3-month returns after setups like this: essentially flat.

I know a LOT of money — mostly retail and HFs — has piled into the software space, trying to catch a bottom. Data shows institutions are selling to them, and my belief is that the knife catchers will get bloodied hands. But we’ll see…
​​​​​​​

​​​​​​​Macro ​​​​​​​

7. We’ve been writing since last winter about the pickup in global growth, and that trend continues to be borne out. Last week, I saw this great chart from a piece by BBG’s Simon White showing what he terms the “Druckenmiller Indicator”. I’ve long used something similar, but the idea is that Druck looks at leading cyclical industry groups, in this case (banks, retail, homebuilders, autos, small caps versus the SPX) as a lead on broader markets and the economy. It works because markets are mostly smart — there’s wisdom in the crowd.

This, along with all our other indicators, tells us recession risk and the risk of a broader bear market are very low.
​​​​​​​

8. I’ve been spending a decent bit of time sifting through charts to see if I can get more of a feel for which direction this compression regime in rates will resolve itself. The chart below shows CESI - Citi’s Economic Surprise Index (orange line) and the 10yr yield (white). A few weeks ago, CESI hit its highest reading since mid 23’. It’s since come off a bit following last week’s disappointing GDP print, but those numbers were distorted by November’s government shutdown — strip that out and the read was strong. We expect more positive growth surprises ahead, which should act as upward pressure on rates. ​​​​​​​

9. Fellow MO teammate resident vol expert, Tony (@vixedsignals), shared this great chart in his latest Vol Street Journal (you can watch here) showing the weekly chart of the 10yr yield, the BofA MOVE index, and the 10-week correlation at the bottom. Tony points out that:

“The correlation is very low due to the MOVE index climbing since late Jan while rates have dropped. Extreme correlations like this have historically preceded a spike in rates. With the MOVE index already so low, it’s reasonable to think that the correlation normalizing will happen with rates turning higher.”

And one more follow-up bonus chart that’s also suggestive of rates breaking higher (chart via Simon White). ​​​​​​​

​​​​​​​Trade Setups / Topical Charts

10. While a number of cyclical industries have been on a tear these past few months, and are arguably overbought over the very short-term. The two charts below from BofA show that, from a repositioning standpoint, this trend is very early days. Imagine AI continues to rerate software lower, but strong growth and flush liquidity keep this from becoming a broader cyclical bear. That money has to go somewhere. And that somewhere is international equities, commodities, hard assets, and cyclicals. And the relative difference in market caps is so large that, well, we can see some wild moves. ​​​​​​​

11. As I said, we’re quite long the energy sector. And it is one of the cyclical sectors that is short-term overbought, by any measure. So we should expect a pullback and some consolidation at some point.

But… I don’t believe we are anywhere near even an intermediate top, let alone a cyclical one. Again, the total relative market cap of energy versus, say, software has become so tiny that it doesn’t much of the way to a reversal in flows to rerate the sector massively higher. What’s interesting is that most of these flows are unhedged, as indicated by the low put/call scores, suggesting that institutions are likely allocating here with more patient capital.

12. This is a monthly chart of Jazz Pharmaceuticals (JAZZ). It’s near the upper-range of its 12-year rectangle. It’s in the lower decile of its relative performance to the biotech sector. Earnings are on Tuesday. If earnings surprise, this one could move fast. ​​​​​​​

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Thanks for reading.

Your Macro Operator,

​​​​​​​Alex

​​​​​​​MO Portfolio & Trades ​​​​​​​

​​​​​​​1. The MO portfolio is up +35.8% ytd. This is a strong start to the year, and historically, our worst drawdowns follow our biggest gains. To prevent this tendency and protect our profits, we’ve dramatically reduced net exposure in our book over the past two weeks, and we’ll continue to run light until we see either a reset in Trend Fragility, an improvement in the Trifecta setup, or ideally both. If you’d like to join our Collective, click here.

2. Our two most compelling positions are currently long Swiss Franc (CHF) and long 2-year US Treasuries. The Swissie is coiling above a seven-month rectangular base while large speculators remain heavily short; we intend to increase our position once it breaks out from this wedge.

​​​​​​​3. We’ve been writing about this setup for nearly a year now. The chart has nested compression regimes. This means a BIG move is coming. Our bias is long (perhaps on the narrative of an AI productivity boom = low inflation), and we hold a small starter long position. But we’re willing to play this in either direction. Pay close attention, a breakout is coming soon… ​​​​​​​

​​​​​​​Trifecta Charts

​​​​​​​4. Our Aggregate Market Internals are trending lower, with most components showing an increasingly bearish divergence. To avoid a deeper correction, we need to see an immediate reversal in these indicators; the longer these negative divergences persist, the higher the probability—and potential severity—of a market selloff.

5. Our Aggregate Breadth + Thrusts chart remains strong at +4, indicating that weakness is concentrated rather than broad-based. Most of the selling is in tech and software, with the Mag7 in particular starting to weigh on the index.

​​​​​​​Given this backdrop, any market selloff is likely to be contained to under 7%. For the market to regain its footing, we need to see tech and the Mag7 resume leadership. At the moment, energy is the leading sector, and historically, broad forward market returns tend to be weak when that’s the case.​​​​​

6. ES is stuck in a broad trading range that’s likely to frustrate both bulls and bears. Aside from maintaining small QQQ shorts as a portfolio hedge, I’m not interested in trading this range until we see a decisive shift in direction.

​​​​​​​My base case—albeit a weakly held one—is that SPX trades down toward its November lows before it can mount a more sustainable move higher.​​​​​​​

​​​​​​​Macro ​​​​​​​

7. The other week, I shared our Market Implied Regime Indicator, which is pricing in an 80%+ chance of a Stagflation regime (high inflation, low growth) over the next 12 months.

​​​​​​​Michael Ashton, writing on his E-piphany blog, makes the reflationary side of the case in a recent post:​​​​​​​

“The story in January 2026 is that the waters remain muddied by the government - shutdown - induced gap. The current y/y figures are all flattered by that event and exaggerate how good the inflation picture is. That’s how the Administration can trumpet victory while the reality on the ground is that inflation is not converging to trend…. So when you read that today’s figure resulted in the ‘smallest y/y change in core inflation since 2021, and consistent with the Fed reaching its target’ – that’s just wrong. The true core y/y number is roughly 0.25%–0.3% higher than what printed today.”​​​​​​

8. Recent labor data showed an upside surprise, though revisions to last year’s figures were weaker than expected. We view the labor market as neutral—neither exceptionally strong nor weak—a stance supported by our Cyclical Jobs Index and Residential Construction Payrolls. While year-over-year construction payrolls have turned negative following revisions, the nominal data is merely moving sideways.

These figures don’t reflect the sharp downward shifts that typically precede a recession; in fact, our Cyclical Jobs measure has actually ticked up after trailing off in late 2025. Ultimately, the labor market remains stable, and recession concerns should be dismissed.​​​​​​​

9. If Stagflation is in the cards for ’26, it likely won’t show up until the back half of the year, as many of our growth leads remain strong. Below is the Dallas Fed Weekly Economic Index, which printed at +2.7% last week.

​​​​​​​Trade Setups / Topical Charts

10. This is an interesting — and bullish — signal for the broader growth backdrop from Dean Christian, who notes that “a long-term chart (monthly data) shows the railroad sub-industry is currently experiencing the second-longest consolidation on record. Notably, its prior breakout from an extended base in 2003 marked the start of a value-led equity cycle.” You can read his full piece here. ​​​​​​​

11. I pulled up a list of rail and rail-adjacent stocks and spent some time going through the charts. Below are my five favorites—NSC, UNP, LNN, WAB, and STEL—shown on monthly timeframes. There are some great-looking setups in this space.

​​​​​​​For other classical chart patterns we’re tracking this week, give our Lead Technical Analyst Mike G’s latest a read here.

12. I believe the bottom is in for the Japanese Yen (JPY). Our multi-charts show JPY breadth (the percentage of pairs above the 200-day moving average) recovering after an extended period at the floor, while short-term breadth is signaling a bullish thrust.

Additionally, yield spread momentum is in the 90th percentile, and both the FRBNY and Japan’s Ministry of Finance are signaling an increased readiness to intervene. We are looking to short GBPJPY or EURJPY (effectively going long JPY), as both pairs have broken down from significant topping patterns.

​​​​​​​​​​​

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Thanks for reading.


Your Macro Operator,
​​​​​​​Alex​​

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1. Our Trifecta Lens Score (a composite of macro, liquidity, technicals, and sentiment) fell to -2 last week, which is bearish. It was driven lower by a big drop in liquidity, which has flipped negative for the first time since Nov of last year.

2. Our Liquidity Indicator plunged to 49% last week, marking its first negative reading since it briefly touched these levels in Nov of last year. I’d expect to see this rebound given the fiscal backdrop, but it’s possible that it leads lower level and we see a flushout in risk first. Regardless, this bears close watch. ​​​​​​​

3. Our Aggregate Breadth and Breadth+Thrust composite, however, remains supportive of the broader uptrend. This suggests any near-term downside should be contained (sub -7%). ​​​​​​​

4. Our Trend Fragility score (a composite of sentiment and positioning indicators) is elevated at 87%. But, this is below the >95% threshold for a conditional sell signal. While BofA’s Bull-Bear indicator is at its highest since March of 06’, triggering a sell signal, where forward 3m returns are historically poor. ​​​​​​​

5. Global CTA positioning is in the 90th %tile according to GS. If the SPX takes out last week’s lows, we’ll have a substantial headwind from trend followers. ​​​​​​​

6. GS’s shorter-term measure of panic hit “9.22 based on 1-month S&P implied volatility, VIX volatility, S&P 1m put-call skew, and the S&P term structure slope (1m vs. 3m). These vol metrics indicate that investors are not far off from max fear.” We also have software and crypto at deeply oversold levels where historically, mean reversion comes into play. This market has fuel for another leg higher before rolling over into a larger correction sometime in March. ​​​​​​​

7. I’ve been highlighting the positive inflections in US growth metrics for the past month. Well, here’s another one… Heavy Truck Sales have put in their strongest 3-month swing since the COVID lows. And there are people out there seriously talking about a recession this year, smh. ​​​​​​​

8. 2-year UST Notes continue to be one of the more interesting long-term setups I’m tracking. They’re in a major compression regime. Have put in a multi-year inverted H&S bottom. And are now consolidating right below the neckline in another compression regime. A big move is coming... My bias is up. We are long and will add aggressively on a breakout.

9. The Swissie is wedging after a breakout from a large 9-month rectangle / compression regime. We bought on the breakout, took partial profit on the quick move, and are looking to add on a move above last week’s high. Also, Large Specs remain very short. ​​​​​​​

10. The Nikkei broke out last week from a compression/wedge within a Bull Quiet regime. We had buy stops triggered on Friday’s move to add to our existing long position. The market gapped up on Sunday’s open (as I write this) on the results of Takaichi’s LDP victory in the snap elections, where they secured 316 seats, giving them a comfortable supermajority, and the political capital to pursue their full fiscal agenda. It appears to be reversing, and we’ll have to see how it closes, but if it closes red on the day, that’d be a notable news failure. ​​​​​​​

11. For the past month, our focus has been on industrials and energy, and that hasn’t changed. Last week, I shared the chart of CVX, which has broken out. Here’s another one we’ll be adding to our book. Coterra Energy (CTRA) is breaking out of a 3-year channel within a larger 14-year channel. That’s a lot of pent-up energy for a run higher. ​​​​​​​

12. Here’s another… Tidewater (TDW), a name we’ve traded in and out of for the past few years, completed a 12m+ inverted H&S last week. We like this name for a number of reasons; my partner, Brandon, may revisit them in an upcoming Long Pull report. We’ll add this to the book soon.

Our resident Classical Chartist, Mike G, shared some great charts (including a few energy names) in his latest This Infinite Game report. I highly recommend giving it a read. ​​​​​​​

13. Bonus chart: Fade GS Clients… (h/t @JS for the chart)

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Thanks for reading.


Your Macro Operator,
Alex

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1. ES continues to compress after a bullish breakout failure last week in the March contract. This failure, coupled with the high Trend Fragility / BofA Bull-Bear Sell signal, and slightly negative Warsh Fed announcement, put it odds on that the market is headed for a positioning/sentiment rinse during this seasonally weak month of Feb.

2. Some interesting points from GS over the weekend (emphasis by me)… sentiment is unwavering… I’m not actively hedging.

3. February tends to be the second-worst-performing month for the SPX (chart via @RenMacLLC.

4. However, as we pointed out last week, the strong aggregate breadth and supportive internals suggest any selloff should remain relatively contained (sub -7%).

​​​​​​​We shorted Qs and ETHUSD last week to hedge our remaining long exposure.

5. This is interesting… Our Market Implied Regime Indicator has risen to 80% for a Stagflation Regime—a reading over 90% has a 100% hit rate in forecasting a Stagflation Regime within 6-12 months. Stagflation is defined by an ISM of 53 or lower and a Sticky Price CPI exceeding 5%.

6. Now, as we’ve pointed out, we expect CPI to fall over the next 3-6 months due to the pure mechanics of falling shelter costs. But it’s interesting that we’re starting to see some of our inflation leads turn up, lending weight to what our regime indicator is projecting (click on charts to enlarge).

7. So we’ll continue to track things and see if our regime indicator passes above the 90% mark, ensuring an inbound stagflation regime starting sometime in the second half. Historically, precious metals have been the best-performing asset in a stagflationary regime, so PMs could become highly attractive again, especially if they spend the next 6+ months weeding out the weak hands.

Citi’s Inflation Surprise Index continues to come in deeply negative, however, giving weight to our first-half disinflationary bent.

8. BBG’s Simon White put out a great note last week highlighting that dealers are becoming “reservoirs of risk” by carrying record equity leverage alongside nearly $500 billion in unsold Treasuries. And this balance sheet congestion is currently hidden by low bond volatility, but it leaves dealers at maximum capacity and highly vulnerable to any sudden market shock.

9. His concern is that if bond volatility spikes, these overextended dealers would likely pivot from providing liquidity to aggressively shedding risk. Which could trigger a forced, cross-asset deleveraging event where the rapid dumping of stocks, bonds, and metals leads to a cascading collapse in global liquidity.

10. Speaking of bonds, Hedge Fund exposure to them is at record highs, according to SentimenTrader.

11. Last week, we highlighted the major compression regime in bonds on the monthly chart. We’ve been trading in and out of this one on the short side. Ultras have completed a large H&S pattern and have been consolidating in a 2-month rectangle below the neckline. My bet is that we see this one break lower soon.

12. Over the past two months, we’ve steadily accumulated long energy positions, capitalizing on historic bearish extremes in crude sentiment and mounting sector relative strength. Chevron (CVX) has just broken out from a five-year compression rectangle with a decisive monthly bar. We’ll likely be adding this one to our port soon.

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Your Macro Operator,
Alex

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1. The SPX continues to coil near the upper band of its four-month sideways range (March contract below). All indications point to a big move coming. The weight of the evidence favors a coming breakout to the upside, driven by a rebound in the lagging Mag7.

​​​​​​​​​​​​​​2. We agree with BofA’s summary takes below (highlights by me):

3. Our Market Internals remain largely supportive of the primary uptrend in risk assets, with the only real weak spot coming from Consumer Discretionary vs. Staples, now that LQD/IEF is recovering.

4. Aggregate Breadth is at +3, and Breadth+Thrusts is at +4. These are strong readings, which suggest any market dips will be contained. ​​​​​​​

5. Trifecta Lens, our composite measure of technicals, breadth, internals, liquidity, sentiment, and macro, is at +1, which is supportive of the primary uptrend in risk assets.

6. However, Trend Fragility is high and climbing. It hit 88% on Friday, which is still below the 95% level that triggers a formal sell signal. This is a conditional signal, so it’s not a reason to be bearish by itself (i.e., stay long but tighten stops).

7. Crypto probably offers the best risk-off hedge here. ETH has broken below its wedge, while net spec positioning remains crowded long.

8. Is SOLUSD about to complete a massive 2-year H&S top? It looks likely… We’ll go short on a sustained move below 120.

9. We were one of the first shops to start pounding the table on the coming breakout in broad commodities, pointing to the MAJOR compression regime in the Bloomberg commodities index in the early Summer of last year. We also noted the major compression in the long end of the curve, with 30yr bonds (chart below) in their tightest squeeze since Aug 2018, which happened to precede a major multi-year bull run.

10. Now compression regimes are directionally agnostic. They don’t foretell whether the coming trend will be a bull or bear. But commodities tend to lead yields, as shown below with the BCOM Index in orange and 30yr yields in white. This tells me we’re likely in for a major steepener, with the front end staying pinned and the long end getting clobbered.

11. Our reflation hypothesis that we’ve held since last Summer continues to be validated. Here we have the Conference Board’s US LEI 6m diffusion index putting in its highest reading since Jan 22’.

12. We’re quite short the dollar via long MXN & CHF, but we’re also interested in adding long JPY and NZD to that mix. They’re overbought in the near term, but the long-term setup is solid. Both have fairly crowded short positioning, strong yield-spread differentials/momentum, and expanding breadth from bombed-out levels. Charts from our multi-chart view in our HUD.

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Thanks for reading.

Your Macro Operator,
Alex

***The MO port finished 2025 up +50.8% and is currently up +16.4% ytd for 26’. The doors are open to our Collective for the next week, so if you’d like to join our group and tackle markets with us this year (which, by all indications, 26’ is looking like it’s going to be a wild ride) then click the link below and get after it***

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1. The SPX continues to coil near the upper band of its four-month sideways range (March contract below, with spot slightly above). All indications point to a big move coming. Before the latest idiotic trade war news my bet was higher, but now it’s likely we see a sentiment/positioning washout and forced walkback by Trump before the SPX can move out of this range.

2. The story for the past few months has been rotation. The cap-weighted index has gone sideways, weighed down by Mag-7, while the equal-weighted index is trending to new highs. We can see there have been three other extended periods of rotation during the current bull trend, starting in 23’.

The average duration is 41 trading days and -6.17%. The current period is 52 days and -5.5%.

3. Some of this is seasonal, as small-caps and equal-weight tend to outperform around the turn of the year. And some of this is narrative-driven, with the technically extended AI megacaps taking a breather and the AI “beneficiaries” catching the outflows. Since the Russell2k total market cap is only $2.5T, or a bit less than one-half of an NVIDIA, it doesn’t take much rotation to drive these relative trends.

4. The trend is up, but sentiment and positioning are stretched. BofA’s Bull & Bear indicator is firmly in sell signal territory, while our Trend Fragility composite is at 86% and rising — a TF sell signal triggers when it crosses above 95%. This tells me the market will likely hit an air pocket soon.

5. While we expect a positioning/sentiment washout, the larger Trifecta picture strongly supports a continued bull in risk assets. Wayne Whaley’s Turn-of-Year (TOY) Barometer is another data point we can add to the bullish ledger. Here’s the following from @SubuTrades:

Bullish seasonality:

S&P 500 gained more than +3% during this TOY (Turn Of Year) Barometer period (November 20 - January 19).

Historically, $SPX was higher 36 out of 38 times a year later, with an average gain of +15.8%

6. Our MO liquidity indicator is at 94% and rising. This is a flush regime which historically points to strong forward 6-12 month returns.

7. And breadth continues to broaden out and strengthen. Last week we saw the A/D lines for the S&P500, S&P1500, and NYSE all hit all-time highs for the first time since late July. That’s bullish.

We also have all 11 sectors trading above their 200-day moving averages, which historically leads to higher than average forward returns. The NYSE New Highs-Lows just climbed above 90%, which is bullish for 3-month forward returns. The percent of semis trading above their 200dma is at 90% and rising, which is… you get the picture.

8. Dean Christians at the excellent Turning Point Markets Research recently shared this great study with subs noting that over 90% of cyclical sub-industry groups closed above their 10, 20, 50, 100, and 200 day averages and how this historically foretells strong forward returns for the S&P.

9. Industrials, materials, and real estate are the best looking sectors at the moment, so that’s where the majority of our focus is. MP Materials Corp (MP), a name we previously owned (and which I pitched in these pages when it was trading sub $20), is a play we’re once again interested in. It sold off 50% from its October high and is putting in a strong monthly reversal candle.

This is a powerful setup and MP likely retakes its October highs before Summer.

10. Bloom Energy (BE) has a a similar pattern (chart below is a monthly). It aslo reversed nearly 50% from its October top and recently traded back to new all-time highs. This chart is headed much higher.

11. Iren Limited (IREN) has also put in a reversal bottom following a 56% correction. IREN is at the center of the AI trade as it builds and operates hyperscale data centers. The AI narrative has taken a breather over the past few months but we think we’re only in the middle innings of this trend.

12. Cipher Mining (CIFR) with a similar pattern. CIFR is a US-based large-scale BTC miner focused on ultra low cost mining operations powered by long-term fixed-price energy contracts.

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Thanks for reading.

Your Macro Operator,
Alex

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1. We’ll be putting out our 2026 non-outlook later this week. It’s a non-outlook because we at MO don’t make predictions; we assess probabilities. To properly assess where we are now, it sometimes helps to pull back and take the 30,000-foot view. So let’s do that today.

Household allocation to equities as a percentage of financial assets is at an all-time high (blue line). Historically, this is bad juju for the subsequent rolling 10-year returns (orange line) (NDR chart via CMG).

2. Record-high equity holdings go hand in hand with record-high valuations. Neither are timing tools, as each condition can persist for some time. But over a sufficiently long time horizon, valuations are the predominant driver of returns. As we head into 2026, both of these will increasingly become headwinds (NDR chart via CMG).

3. In 2025, the SPX saw its worst performance relative to the MSCI World ex-US index in over 15 years (white line). Was this a change in cyclical leadership or a temporary wobble? We’ll have to see if this trend persists, as it’ll have significant implications for the dollar and commodities, if so.

4. One of the key Risk Cycle indicators we track is the RoC in NYSE FINRA Margin Debt. Cyclical bear markets occur when investors get out over their skis, as built-up leverage is required to induce the forced selling which undergirds a grinding bear market. A conditional risk signal triggers when margin debt rises above 60% on a YoY basis. We’re currently at 37%, which is elevated but still well below the threshold (chart via our friend Dean over at TPMR). ​​​​​​​

5. Stock Traders Almanac’s seasonality-informed base case for 2026: “70% Probability — Some volatility, most likely in Q3 of 2026. Late 2026 rally in Q4 ultimately pushes the market to a historical sixth year of presidential administrations gains for the year of around 8-12%. Inflation concerns linger but do not grow, the administration’s numerous policy changes deliver mixed yet positive results, new Fed chairman has a seamless transition, and the labor market remains reasonably stable while the AI-fueled spending and development “Super Boom” continues.”

6. Here’s the 2026 market outlook and price targets for SPX, gold, oil, and BTCUSD. Some thoughts… All the shops are bullish equities (though most are projecting pretty modest gains). There’s a stubborn bullish consensus on BTC despite its poor performance in 25’. And oil is still getting no love.

7. Jim Paulsen made the argument in a recent post (link here) that consumer confidence is as critical to stock market success as earnings, despite receiving far less attention. He highlights the current massive divergence between the two and draws parallels to the 1950s and 1980s, when stocks soared primarily on rising optimism. Consequently, Jim views a rebound in Main Street confidence as the likely “winning ticket” for 2026, positioning the S&P 500 for solid returns even if earnings growth remains flat. ​​​​​​​

8. Summarize bullet points from Citadel on the fiscal and liquidity outlook:

• Policy Inflection Point: The start of 2026 marks a key shift in policy, with fading tariff uncertainty and a reversal in fiscal impulse from a Q4 2025 drag (-0.6% of GDP) to an early 2026 tailwind (+0.5% to +0.9% of GDP) driven by the “One, Big, Beautiful Bill Act.”

• Front-Loaded Fiscal Stimulus: Retroactive personal income tax cuts expected to deliver ~$80 billion in Q1 2026 refunds to U.S. households, with a high economic multiplier potentially boosting retail equity trading activity.

• Monetary Policy Support: Lagged effects from 175 basis points of Fed rate cuts over the past 18 months will ease financial conditions, adding an estimated +0.5% to quarterly annualized GDP growth through much of 2026.

• Upside Risks to Stimulus: Policy risks lean toward more support, including additional tariff relief or targeted transfers (e.g., $2,000 payments to households earning under $75k, equating to ~$150 billion in extra fiscal aid), which could further amplify aggregate demand.

9. We’ve been making the case for rebounding global growth, particularly here in the US, since early Fall. This view took a brief hit following the temporary renewal of US-China Trade tensions in Oct/Nov, but has once again started playing out. Below you can find a number of our growth leads, each of which are inflecting higher.

10. Will we see a disinflationary boom in 2026? It certainly looks probable... All our inflation leads continue to fall, with some outright collapsing, and all signs point to this continuing in the first half of 26. Accelerating AI adoption is lowering unit labor costs, allowing companies to protect margins without raising prices on consumers. Additionally, due to CPI’s 12m+ lag to shelter (core CPI’s most significant component), inflation must mechanically fall in the first half of this year.

11. This great chart from Stifel Research shows the 10-year annualized growth rate for the commodities index and how major deflationary lows drive the election of populist politicians, which then leads to wars, which drive the tops in commodity super cycles. This is an interesting view of the Narrative Pendulum in action.

12. This inspired me to update this chart I shared back in early 2022. On a short-term basis, positioning and sentiment have become quite stretched in certain commodities (gold, copper, etc), and we’ll likely see a shakeout sometime in the first quarter of 2026. But… as these two charts show, this commodity supercycle still has a long way to go.

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Thanks for reading.

Your Macro Operator,
Alex

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1. The latest BofA Global Fund Manager Survey came out last week. According to the report, fund managers are: ​​​​​​​

1. The most bullish risk assets in 3 ½ years

2. Highest macro optimism since Aug 21’ on “run-it-hot” belief

3. Lowest cash level since 1998

4. Investors most overweight stocks since Dec 24’

2. BofA’s revamped Bull & Bear indicator is back in “sell signal” territory on “huge inflow to equity ETFs, rising global stock index breadth, hedge funds cutting length in VIX futures.” A “Bull & Bear Indicator >8.0 = extreme bullishness = contrarian sell signal; median decline in global stocks = -2.7% in 2 months following 16 sell signals since 2002 with 63% hit ratio; max drawdowns in 1 month, 2 months, 3 months after sell signal = -4%, -6%, -9% respectively (vs. max upside foregone <2%).”

3. Also, both AAII and NAAIM show average investor stock exposure near multi-year highs (chart via BBG’s Simon White).

4. Similar to BofA’s study, White shows that SPX returns over the next 3 months tend to be poor when investors are this crowded long. ​​​​​​​

5. Citadel Securities shared an interesting report detailing the rise in household wealth, particularly from the bottom 50%, and how this is leading to increased engagement in the equity market. However, CS notes that “Despite this increased engagement, households continue to hold near-record cash balances (98th percentile historically), leaving substantial dry powder should confidence and risk appetite continue to improve. We see this “buy-the-dip” behavior, every day in our data at Citadel Securities.”

6. Admittedly, the immediate setup is a bit of a mixed bag. On the positive side of the ledger, we have constructive breadth, very strong seasonals for the next week, and most internals confirming the uptrend. On the negative side of things, we have the aggressive positioning mentioned above, along with deterioration in credit leads and high valuations.

I’ll play the market as it comes, but my base case is that we rise into the eoy, fueled by low-volume seasonal trading. Maybe poke our head above the channel line below before rolling over for a bit of sentiment and positioning washout to start the new year (SPX chart our Classical Chartist @mikegyulai; make sure to give him a follow).

7. LQD/IEF divergences can lead market corrections by a few weeks to a few months. A rule of thumb is that the longer the divergence, the larger the incoming correction will be. The current divergence has been going on for a month and a half. ​​​​​​​

8. I don’t believe a significant correction is inbound, though. I think it will stay contained (sub-10 %). There’s just too much underlying strength for things to dump hard. For instance, Cyclicals vs Defensives just put in a rare string of consecutive outperformance.

GS notes that “when we look at every period since 2007 where cyclicals beat defensives in long streaks (8 straight gains or more), the 3-9 month returns for the S&P are almost always positive — and often very strong. It’s one of the cleaner signals we have that the market is sniffing out better macro conditions before the data fully reflect it.”

9. We expect US growth to surprise to the upside in 26’, and with a new Fed chair likely to pin the front end to the floor, we should see the term premium rise. A continued bear steepening is what the charts are saying (chart via Jurrien Timmer).

10. We have buy stops on crude here to see if it can pull us in long. Last week, I pointed out the historical extremes in bearish positioning. This is amidst a backdrop of rebounding global growth. The trend isn’t great, so trying to put on tactical longs here is a bit like spitting into the wind, so we’re keeping sizing small. But we’ll see if crude can hold this double bottom.

11. The AI trade isn’t over. This cycle still has some legs. We’re keeping a close watch on ancillary AI names that have corrected after a large run. One of my favorites is Bloom Energy (BE), which has sold off 50% from its recent peak after a quick 1,702% run-up—big props to fellow Collective member @VBK for nailing this one early on. ​​​​​​​

12. The rise in household wealth and greater market involvement is a cyclical tailwind for brokerage stocks, like SCHW. Mike G shared this one in his excellent weekly “This Infinite Game.”

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Thanks for reading.


Your Macro Operator,
Alex