Summary: The primary trend in equities remains up. Expanding breadth, flush liquidity, and strong internals point to very favorable forward returns over 6-12 months. However, Trend Fragility is high and climbing. A formal sell signal should trigger within the next month if volatility stays low. This is a condition, though, not a catalyst; stay long but trail stops, and watch for a turn in breadth/internals. Crypto offers a good hedge as major pairs (BTC, ETH, SOL) break down from key levels. US growth is accelerating, and the long end looks vulnerable, while the USD may be starting a cyclical bear.
***The MO port finished 2025 up +50.8% and is currently up +23.7% ytd in 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***
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.
Thanks for reading.
Your Macro Operator,
Alex
love the multi-charts and positioning (i’m biased there). do u guys take a deeper dive on the positioning elsewhere? JPY is massively offsides short, agree