Alex Barrow

My base case is we’re in a primary bear market and we should enter a recession in the latter half of this year, though odds say we should see a continued bullish counter-trend move over the coming weeks... 1/

2/ With that said, looking at charts like those below makes me uneasy about my bearish bent. https://t.co/oTPU9XwHKZ

3/ In support of our short-term bullish view, here’s a chart of the Russell 3k and the percentage of stocks above their 10 and 50-day moving averages.

Red dots mark instances where both the 10 and 50-day indicators dip below the 20% level, indicating deeply oversold breadth. https://t.co/jzCmHlbhLw

4/ We should see these charts roll over before the broader market does. But right now they continue to either rip higher (in the case of semis vs SPX) or at the very least, confirm the bullish advance in the broader market.

Not bearish... https://t.co/ezeJ9q6rGh

5/ Our Trend Fragility indicator (a composite measure of positioning and sentiment) dropped last week to its 14th percentile. A move below 10% has a strong track record of marking durable bottoms.

And these charts from GS show CTA positioning in stocks is near its all-time lows. https://t.co/dT3wN23tkA

6/ Here’s a breakdown of labor market gains/losses by industry. This measure has been steadily deteriorating over the last couple of months but remains far from levels indicating a recession is nigh. https://t.co/tGO8LX166s

7/ We dig deeper into economic data while discussing oil, bonds, and crypto in our latest Dirty Dozen chart pack:

https://t.co/nbqoeSfFSG

Founder & CIO of Macro Ops, PM @ Foundation Capital. I publish global macro insights & investment theory.   ex. USMC, FBI, DIA, PLTR

Alexander Barrow 🪶

Sentiment and positioning remain very depressed. Last week’s SIVB freakout likely marks a near-term low.

Market internals (Cyc vs Def, Semis v SPX, etc.) are not leading to the downside. They’re either leading up or trading in line with the market. That’s not bearish... 1/ https://t.co/MZwWNwyo1s

2/ The Russell chart is broken because of the knee-jerk reaction in financials last week following the SIVB news. It’ll be important to see if IWM can retrace that damage this week.

But Qs and SPX remain constructive as long as they can hold their current levels. https://t.co/LcJwrLLzvI

3/ Anecdotally, last week I started receiving texts and calls asking about a potential market crash from friends I don’t normally talk markets with. It seems to me that the bearish hysteria doesn’t quite match the tape.

4/ The SPX’s operating cash flows trail profits by the “most on record.”

BBG’s Lu Wang points out that “income at SPX companies, adjusted for amortization and depreciation, topped cash flows from operations by 14% in the year through September…

5/ ...In other words, for every dollar of profits, only 88 cents was matched by cash inflows, the largest discrepancy since at least 1990.” https://t.co/yiVBoUfCVJ

6/ The spread between BBB credit and equities is now positive with the SPX sporting an earnings yield of 5.4% compared to that of IG bonds which yield 5.7% on average. https://t.co/9yNRD6bUbk

7/ Our macro environment can be summed up as thus: aggregate US valuation metrics in 88th percentile + resilient US economy forcing an aggressive Fed to stay aggressive + deteriorating fundamentals = a recessionary hard landing later this year

8/ The hard landing will be due to monpol lags and the positive feedback loop of the labor market unwinding.

This is why we remain long-term bears even though we currently lean bullish over the short-term. https://t.co/sOMNIPYvOX

9/ We dig deeper into current economic readings, European stocks, and commodities in the latest Dirty Dozen chart pack: https://t.co/fKNRLZn7WA

The SPX has only two trading days left in the month to see if it can turn its monthly bar around and close in the green. As of now its not looking so good.

Also, the chart is coiling in a tight 10-month range. Compression regimes lead to expansionary ones (aka. Big trends)... /1 https://t.co/ZldZRzF0UV

2/ We’re fairly neutral in our short-to-intermediate term outlook. So we’ll wait for the market tip its hand on this one. Bonds will be the tell. If they can’t hold a line, then neither will stocks.

3/ It's not all bad though… key internal leads continue to hold up well. Typically we’d see cyclicals, semis, corporate debt, etc… underperform on a relative basis if we are in fact about to start another leg lower. And that’s just not happening, yet. https://t.co/y8u3ca7AB0

4/ Bridgewater continues to pound the higher for longer rates table (Dalio is obviously a big fan of MO’s work). Their recent report with the riveting title “The Tightening Cycle Is Approaching Stage 3: Guideposts We’re Watching" states the following: https://t.co/1QhW5QstMs

5/ Here is what BW thinks needs to happen in order to obtain a more stable equilibrium. And FWIW, we agree with them: https://t.co/HVnQoQDJKG

6/ We dig deeper into BW's report, analyze cyclical bear markets and recessions, and make a case for crude oil in the latest Dirty Dozen chart pack: https://t.co/mqPKNXwvhO

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