Summary: SPX broke out from its multi-month consolidation. The bull trend is supported by positive breadth, strong earnings growth, and an investor base that remains underweight.
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…
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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.
Thanks for reading.
Your Macro Operator,
Alex