LOCKED AND LOADED.
A textbook initial reaction to last week’s historic signals. My core scenario may be in motion.
In today’s report:
Highlighting the Seven Charts which most stand out on my screens, the Top Signals I’m watching, and my Updated Portfolio Plan.
This week may have been an initial glimpse of what’s to come.
I continue to move the equity portfolio with a clear goal: balancing the risks and looking for uncorrelated setups.
To this goal: today we’ll look at what I think could be one of the best setups of the year — which could strongly support my core framework.
This Week’s Market Context:
Big moves at the top of the pack…
A lot to watch this week, including CPI on October 14…
Have a great week ahead!
CHART 1: STOCKS
THE TOP STOCK CHART I’M WATCHING:
The market is locked and loaded for a rotation. The percentage of S&P stocks outperforming the index may have bottomed for the fourth time in two years. Prior bottoms led to a rotation into “everything else” — Equal-weight, Cyclicals, and Rate-sensitives. Each turn lasted about 2-3 months, with breadth expanding sharply:
MARKET CONTEXT:
The Summation Index may be turning up, supporting a recovery:
Investors just poured money into cash funds at the fastest pace since the pandemic. Money-market funds had inflows of $166.4Bn this week — the most since April 2020. *This is similar to a recent chart I published, which showed big flows into Cash ETFs:
Nasdaq positioning is at levels where relative performance flattened out. This supports diversifying exposure to other areas for now:
Plan:
- ✅ Lean to reduce Tech (1) at higher prices (*on earnings gaps up, for instance), (2) if momentum begins to roll over, (3) if other areas begin to show better risk-reward.
- ✅ Staying focused on which groups look the best, which stocks are being bought, and how can I shift more exposure to what’s working.
This week may have been an initial glimpse of what’s to come.
Price action across the board was extremely compelling…
CHART 2: VOLATILITY
THE TOP VOLATILITY CHART I’M WATCHING:
Rates volatility plunged this week, confirming last week’s reversal. The last time volatility dropped like this, the top was in. This is a major bullish catalyst for cyclical and rate-sensitive stocks:
Lower rates volatility would be a strong tailwind for all markets…
CHART 3: PRECIOUS METALS
THE TOP METALS CHART I’M WATCHING:
Gold sentiment is at the same level where it bottomed in June, and subsequently rallied +19% over the next two months:
MARKET CONTEXT:
This is potentially one of Gold’s best setups of the year. If sentiment is bottoming, the risk-reward is extremely asymmetric — price may have made an initial reaction this week:
Precious Metals & Miners would be among my top candidates for leadership in an asset class and stock rotation.
CHART 4: DOLLAR
THE TOP DOLLAR CHART I’M WATCHING:
Dollar Positioning is at 96 percentile — extremely crowded again, and where the Dollar formed some big tops throughout history:
MARKET CONTEXT:
EUR positioning is at the lowest since 2020.
The big battle at 1.12 continues — risk-reward doesn’t favor pressing downside here, but let’s see how they trade this week:
CHART 5: RATES
THE TOP RATES CHART I’M WATCHING:
Bond Sentiment bottomed at 0.78 percentile and turned UP on Friday:
On positioning:
Bloomberg published a story this week on Ultra-long Treasury futures seeing “significant asset-manager deleveraging — net longs cut $27m/DV01 over two weeks with open interest falling 7 consecutive sessions”.
The long end made a significant reversal this week:
Watching the two critical lines:
Emphasizing what I wrote last week:
The first breakout was rejected, which is normal behavior for an oversold asset.
This is the moment to watch for a second breakout attempt…
They usually don’t look back.
CHART 6: OIL & ENERGY
THE TOP ENERGY CHART I’M WATCHING:
XOP invalidated the topping structure but made a key bearish reversal on Friday. Will be watching how this develops, and if it sets up a bigger turn:
Some important developments this week — *and remember they usually publish “crazy stats” near a top:
The Global Oil Tanker Shortage Is Getting Worse by the Day (BBG, Oct 9)
- It’s now more expensive to hire a tanker from the US to China than to launch a rocket into space, with the journey costing about $80 million.
- The high costs are the result of a global tanker shortage, with rates now the highest since the 1960s, surpassing the tanker wars of the 1980s.
- The surge in shipping costs is making crude more expensive for buyers, eating into refining margins and adding to inflationary pressures in energy markets.
China to resume October fuel exports after holiday pause, sources say (Reuters, Oct 9)
- China is set to resume October refined fuel exports after a brief halt during its Golden Week holiday, four traders familiar with the matter said on Friday, a move that will help ease tight global diesel, gasoline and jet fuel markets.
- China, the world’s biggest oil importer and home to the world’s largest refining industry, approved October exports of the three fuels at around 3.7 million metric tons combined, two other industry participants said on Friday.
Trump Says Putin to Supply US With Diesel Ahead of Midterms (BBG, Oct 9)
- President Donald Trump is working with Vladimir Putin to release Russian diesel supplies into global markets to tame soaring fuel prices ahead of the US midterm election.
- Trump announced a series of cargoes beginning this month totaling about 13.5 million barrels, with Russia confirming it is ready to supply that amount of fuel, but there are concerns over whether the promised barrels will be released and have a significant impact on prices.
CHART 7: BITCOIN
THE TOP BTC CHART I’M WATCHING:
BTC pulled back to the breakout and the dip could be complete. If BTC were to stage any test of $73-76k range, following the 2023 analog it could be the best (and last) opportunity to get aboard a new Bull Market. There’s a brief window for this to happen, but it may be closing soon. If BTC extends to a new rally high it would break the analog and be a very bullish signal.
Will be updating this setup with priority.
FLOWS & POSITIONING
Positioning extremes:
- VIX positioning is record short.
- Rates positioning remains low, particularly SOFR, TY, and FV.
- Gasoline, Industrial Metals, and Grains remain extremely crowded. Gasoline positioning is nearly at a new record long.
- U.S. Dollar positioning rose to 96 percentile this week and is extremely crowded, matching big tops throughout history. Traders slashed exposure in MXN, AUD, NZD, BRL, and EUR. EUR positioning is at the lowest since 2020.
POSITIONING HIGHLIGHTS
Russell fund positioning remains extremely short:
VIX positioning is record short:
FX positioning is at notable extremes for several contracts:
Gasoline positioning is at 99 percentile — aligned with major historical tops:
PORTFOLIO HOLDINGS
The Portfolio Holdings page has been updated here.
- ✅ I want to take full advantage of a potential new rally/rotation if it builds momentum.
- ✅ I made additional moves this week, and want to keep working in this direction — looking for more Rotation Basket ideas and exposure. Will build on new ideas throughout the week as well.
- ✅ Staying disciplined and focusing on the best risk-reward setups.
CHART HIGHLIGHTS & TOP SCANS
Nice initial strength in AMZN:
Extremely impressive leadership from Software this week — now almost at new highs:
Software names on watch:
Also impressed with XLF’s big rally to close the week — looking to build exposure in the group, possibly on a dip or consolidation in the next few days (will update):
FINAL THOUGHTS
I continue to move the equity portfolio with a clear goal: minimizing the margin of error, and looking for new diversification options.
My core scenario may be in motion:
- ✅ This week showed a textbook initial reaction to last week’s historic bottoming signals.
- ✅ New market leadership is emerging. This week may have been an initial glimpse of what’s to come.
- ✅ A rotation could bring new setups to the table, while “cash on the sidelines” has risen sharply (a contrarian bullish signal).
- ✅ Rates volatility likely topped last week. Rates may have followed suit and reversed this week. Watching for further confirmation.
- ✅ Precious Metals & Miners would be among my top candidates for leadership in an asset class and stock rotation. Gold is showing one of the best risk-reward setups of the year.
The asymmetry remains extremely compelling here, in my view.
I want to move strategically and methodically, focused on what’s showing strength, and where capital is going.
Let’s see how they trade this week…