A Major Update on Markets

It’s been six months since I last posted on this blog, and it’s time to put thoughts on paper again.

For new readers, at the top of this older report you’ll find the standard disclaimer & brief background of my views over the last few years. While you’re there, I also recommend the other archived reports. They have information on my process & approach, some of which may help your Investment/Trading process going forward. Best of luck.

BACKGROUND INFORMATION: I am an Equity & Macro portfolio/fund manager and key advisor to Hedge Funds, Family Offices and Pension Funds. I’ve worked with partners over two decades, navigating many different market environments. My partners are institutional investors looking to constantly expand capabilities & improve rules-based strategies. If volatile markets in 2020-2021 have you looking to improve Systems & Advisors to your process, please reach out. I can also build strong teams while working closely with key persons. If interested, please get in touch here. Thanks for your support.

A personal note: today marks two years since joining Twitter to share some of my charts, a decision that far exceeded my expectations. I’ve made great friends and look forward to making many more. From the beginning, I’ve tried to show a unique, different angle to themes that investors are focused on. Sometimes an alternate or unpopular view. Hopefully it’s been worth it, and helped you along your journey.


I get these questions frequently, and never have time to answer them properly:

  • “Why were you so Bearish in the summer and fall of 2020?”
  • “What made you change your mind in November-December 2020?”
  • “Why have you been Bullish in 2021 despite the problems & growing euphoria in Stocks and other markets?”
  • “Do you think Stocks can do well going forward?”
  • “Which Stocks can perform well in a non-trading, investment-focused portfolio?”
  • “What risks do you see here?”

These are thoughtful questions which require thoughtful answers, and Twitter isn’t the best venue. So I saved everything for this big post.

This is the first time I’ve reviewed my process publicly. Normally this is an internal process with our firm & partners, in more detail than a blog can hold. I’ll discuss portfolio exposure too, which I rarely disclosed before. I’ll share the lessons I learned in 2020, a year that tested every battle-scarred Trader, and formed a whole new generation. A friend and veteran Equity manager called it “Difficulty Level 11”. It says a lot about what we all had to work with:

Every market strategy was tested in 2020.

Translation: everything broke.

This led to many, many lessons.

PART 1: The good. My Core Equity strategy avoided nearly all of the March 2020 Crash and began turning constructive early. The Equity strategy is mostly Long-biased, with generally low Short exposure in Bull trends. My preferred execution approach is to (1) continuously scan for Global opportunities in strong and weak Markets, (2) increase Stock exposure significantly when a Market bottom is potentially forming, (3) pyramid once or twice in the days/weeks after a bottom is confirmed.

In March 2020, markets made enough historic moves to fill a textbook. By the time the bottom was being formed, all of my Core Models (my primary Active Management tools) were stabilizing, and the strategy began allocating to individual Stocks. Purchases were made incrementally over many days, as most Stocks I watch with close interest had already bottomed before the indexes – particularly Technology. As the market finally turned up, we were significantly allocated and I shared several turn signals in real-time on Twitter, for instance the one below.

Critically, most of my exposure was in Technology, with little exposure to Cyclicals like Energy (despite the great value they offered). Why? Because Energy was still in a six-year fundamental & structural downtrend with massive negative Momentum since peaking in 2014, while Technology was in a twelve-year fundamental & structural uptrend since bottoming in 2008. Long-Term Trends are the primary driver of investment returns, and my goal is to compound capital in the strongest areas of the market until the Stocks say otherwise. In March 2020, the market was saying to bet on Tech.

PART 2: The bad. The initial rally from the Mach 2020 bottom far surpassed everyone’s expectations including my own. I was fairly concerned by late April/May, but Core Models were still invested and had room to go slightly higher. By mid-May I started getting initial Core Model Sell signals, and shared some charts as they peaked.

Into late May, I sold Stock exposure gradually on most days. Remember what I wrote about institutional constraints in the October 2020 report. By the end of May my precious Tech exposure was significantly lower, roughly ~25-30% Long. The rally extended into June, as Cyclicals enjoyed a last-minute burst of enthusiasm on the economy reopening. This speculative burst (which I discussed in the June 5 blog post), together with Core Model Sell signals, led me to worry about the possibility of a Major Bear Market unfolding.


Bob Farrell is a legendary technical analyst who was instrumental in my formative years as a Trader. For those new to his work, his 10 Rules for Investing are a must read.

Bob Farrell’s rule #8 says: “Bear Markets have three stages – sharp down, reflexive rebound, and a drawn-out fundamental downtrend.”

Let’s go back to June 2008, the middle of the last Major Bear Market. Everyone knew the Banks were not doing well. The fundamental Bearish story was known and the charts confirmed it:

Following Bob Farrell’s rule to the letter, the S&P dropped sharply for six months into March 2008, then staged a reflexive rebound into May 2008 (blue box above).

At the May 2008 S&P peak, everyone was crowding into Commodities and some Emerging Markets because they were the only things still going up. They were expected to “decouple” from the fundamental weakness in U.S. Banks and Housing. As everyone piled in, Crude Oil & Energy Stocks kept making new highs all the way to July 2008. Everything else had already peaked.

The rest is history. Decoupling was a myth. The market darlings were not immune to the business cycle. Everything succumbed to Bob Farrell’s “drawn-out fundamental downtrend”. The third stage of the Bear Market took over and destroyed all in its path.

This sequence played out similarly in most Major Bear Markets in history. Investors believed they were protected by owning an increasingly narrow group of Stocks that were still performing relatively well. So they crowded into those few remaining Stocks and hoped for the best. But the Bear eventually came for everyone.

Fast forward to June 2020. Blue box below: after a historic rally from the March 2020 lows, (1) the weakest area of the market – Energy – had barely recovered its losses, (2) was still mired in a deep downtrend like the Banks in 2008 while (3) Tech Stocks and the Nasdaq made new all-time highs like Oil & Energy in 2008. The market was just as fractured as it had been twelve years earlier. This extreme polarization was very rare.

At the March 2020 lows, no one wanted to own anything. Not even Tech. But just three months later, Traders were all-in Bullish on Tech “decoupling” from the economy, since “work-from-home” plays would benefit from a “new digital world”. This was no different from the decoupling story in 2008. Investors were ignoring the significant risk of a fundamental decline taking hold, similar to Bob Farrell’s third stage of a Bear Market. If ever there was a time for a real Bear Market to sink its claws, it was during that unprecedented global shutdown in 2020. Risk became especially high when Cyclicals turned down sharply and erased the June 2020 rally just a few days later.

Even worse, my Core Equity allocation systems were ranking roughly 65% of individual U.S. Stocks as uninvestable, one of the worst market environments ever. Most Stocks were indicating a Bear Market environment was still underway. Many Traders shared similar concerns on Twitter: new Bull Markets normally exhibit powerful participation with everything trading strongly. But by the summer of 2020, the market was extremely fractured and the rally increasingly narrow. Bob Farrell also had a rule for this. His Rule #7 says “Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.” Stocks weren’t behaving like a new Bull Market was underway, quite the contrary. And my Core Models were not acting well.

Further, the leader of the old Bull Market – Tech – remained the leader. There was no rotation into Cyclical Stocks which would most benefit from a recovery. New Cyclical Bull Markets usually see major changes in market leadership, with new Sectors & Stocks taking charge. There was no change in market leadership from March-October 2020. This was a long period of time. It was a problem.

In retrospect Energy peaked in June 2020, and investors who bought the premature reopening saw XLE decline -40% over the next five months, and heavy losses in other Cyclicals. The Core Models served HALF their purpose, while the allocation systems avoided the many problem areas.

But Tech kept running higher. And I had cut most exposure. Tech didn’t even blink in June 2020. Core Models triggered weak Buy signals. Below, note the shallow pullback in the Model. Technically it was a Buy signal, but not a very strong one historically. Tech rallied two months after that.

Part 3: The ugly. By August it was clear I should have stayed with Tech, which gained sharply despite a relapse in Cyclicals. Missing that extension in Tech, especially after owning all the key Stocks and letting them go early, was extremely difficult to watch. Even worse, the chart below shows that by the beginning of September, there were Major Sell signals triggering on almost all Core Models. This was the same Major Sell signal that previously triggered at the February 2020 top. What would you do here? I could only watch and wait.

You’re only as good as your last trade. I kept a close eye on Tech, studying how long the rally could continue, looking through history for a guide. The mood all over the street didn’t help. The Tech rally had everyone on board, and rightly so.

By September 2020, many big Tech Stocks looked like Microsoft above – a speculative frenzy rarely seen before, usually with painful consequences.

What if the Tech blow-off lasted another year? Two years? And the worst-case scenario – what if nothing else went up? Either you were in Tech or you were out. Would there have been any opportunity to get back in later in the rally?

I was too cautious on the market environment, concerned over the elevated risk of a Major Bear Market unfolding, and concerned over the risks flagged by my systems. During that period, the Nasdaq and Tech Stocks rose 15-20%, the S&P rose 5% and Cyclicals fell.

In hindsight, could I have stayed at full exposure in hard-bought Tech positions? Maybe in an individual account. But in an institutional environment, where one is entrusted with capital & the responsibilities that come with it, I’m not sure it was possible to (1) be fully invested in that situation, or (2) justify concentrating in a narrowing group of highly-correlated Stocks. Prioritizing process over outcome is critical, even if the outcome isn’t good. I owned the outcome, lessons and all.


In my last post from October 2020, I was looking for ideally another drop in Stocks into the election similar to 2016, “perhaps a C-wave capitulation scenario to finish what has (so far) been only a halfway-there correction”. The market pulled back into the election, and the Buy signal triggered early. Here’s the Core Model at the time:

At the start of November 2020, Energy was near its March lows. Tech had lost momentum. Then on Friday November 6, Stocks closed the week with a major Bullish change in character. Individual names exploded higher in a powerful rally signal. I shared this comment, the first time in months Stocks were behaving constructively.

To be clear, I wasn’t raging Bullish or aggressively Long, but we started buying Stocks one day at a time again. Looking for ideas. Grinding it out.

Critically, the weakest sector became the strongest sector overnight. Energy blasted out of a downtrend on November 23 – for the first time in more than two years:

Below, this was XLE’s Monthly chart at the end of November 2020. Market leadership was shifting to this Sector. Could this mean a new Cyclical Bull market was underway? After years underweight Energy, what would you do here? How long could the rally last?

Comparing the last three Energy cycles, there was a chance something big was underway. I shared this chart below in December. By January the turn was confirmed and Cyclicals had gradually become our largest exposure, particularly Energy. I still think Energy will be the most important sector to watch this year.

Below was the key to the puzzle, from the October 2020 report. Looking back and studying that period, markets spent the second half of 2020 setting the stage for the turn. I had missed the opportunity in Tech over the summer. But the market presented a new one. I worked closely with partners to emphasize this shift, and prepared for a big potential change in 2021.


Until 2020 came along, I weighed Core Model signals more than individual Stocks. This helped avoid the March 2020 Crash for instance. But it missed the summer 2020 Tech rally.

After extensive review, the best solution was the simple one, and I’ve been using it since 2021 began: individual Stocks get a higher weight in the inputs, while Core Models get slightly less weight. Since that small but important change, it’s already helped focus our attention during multiple disruptions in Q1 of this year.

For instance in January, when a wide short squeeze led to Hedge Fund losses and deleveraging, I wrote:

Many important Stocks were still working, so we stayed invested and looked to Buy/Add names at favorable prices.

Later in Q1, Bonds dropped sharply while Tech & Growth Stocks went through a big capitulation. This was the finishing blow to a six-month chop in the group (remember the Microsoft Call-buying chart from earlier). But again most Stocks were still trading well, so we focused on new opportunities, this time in Tech & quality Growth. Adding conviction, the Core Models were right in Buy signal range. I shared this & related charts during that period:


We’ll cover the following:

  • “Do you think Stocks can do well going forward?”
  • “Which Stocks can perform well in a non-trading, investment-focused portfolio?”
  • “What risks do you see here?”

I think Stocks can do well this year, for the following reasons in order of importance:

  • Individual Stocks are trading well. When this stops, it will be time to gradually take down risk.
  • Core Models are behaving Bullishly, with good market response.
  • Last but not least, after several localized blowups in Q1, everyone is on the edge of their seat looking for the next debacle.


Let’s go through one at a time:

Put/Call Ratios are low, therefore Markets are complacent

This is not totally true – Options activity remains quite pessimistic. Below, U.S. Options Volume over the past several months ranks among the 5% most pessimistic in 30 years and is turning up. This mostly led to bottoms or uptrend continuation. It’s a “wall of worry” in full force – not even close to complacency. I shared this & related charts and got many responses. Most were similar: “yes but what about this [other indicator]”. Traders are on the edge, with one foot out the door, looking for any reason to Sell Stocks.

As of early April 2021, the above chart shows Traders finally stopped buying Puts and just began buying Calls to participate in the rally – we only just crossed the recognition point. Further, high Call activity for a few days is Bullish behavior at the start of a rally – for instance November 9 (the start of a big rally) closed with an extremely low 0.37 Put/Call Ratio as Traders stopped buying Puts and started buying Calls. It was Bullish. A lot of Call activity for a few days is irrelevant if over the prior several months Traders skewed heavily to Puts. The fact that Traders are concerned about this today shows how the current mood is nowhere near euphoria, and more like a wall of worry.

“Sentiment surveys are high, therefore Markets are complacent”

It’s true that some surveys show elevated investor sentiment. But I give higher priority to Market-based sentiment. One of my favorite real-time indicators is the CNN Fear & Greed index, and it’s free. The current environment is quite unique. The S&P is up double digits YTD (which most people don’t realize) but this sentiment gauge has been stuck in a box all year. As of the time of writing, the market is two days off the highs and F&G is back under 50 again. At this pace, any real pullback could quickly flush sentiment to a very low level. My best guess: F&G could reach the 80-90 range later this year, and then the market could be more vulnerable to a larger 10%+ correction. Maybe this would happen in 2H21. By then individual Stocks may be much weaker, Core Models could trigger Sells, weaker seasonality would be active, and everyone could be looking to buy the dip (the opposite of what we see today).

“Stocks are really overbought”

Yes, the S&P daily RSI went over 70 recently and was technically overbought. But below is a chart of the 50-day moving average of RSI. Some background on this indicator: in January 2018, Steve Deppe shared this original chart on Twitter (he shares great content, follow him here). He flagged the big overbought condition right as the market was topping. The rest is history, and I’ve watched Steve’s RSI indicator ever since. Fast forward to today, some analysts are comparing the market to April 2010 and January 2018. Those peaks led to sharp double-digit corrections. The main problem with the comparison is that those peaks were much more overbought. In fact many of the biggest Tops over the last decade were much more overbought than what we see today. We could just as reasonably compare this environment to 2013-2014, a period where daily RSI was overbought many times (not shown), while RSI50 never once got overbought, and Stocks rallied relentlessly. More importantly, RSI50 just turned up and could be rising again. Could this potentially reach a full overbought reading later this year? Time will tell.

Volume is very low – this is bad for Stocks

This isn’t really true either. Below is a Volume Oscillator for the U.S. Market. As of early April 2021, Volume had been extremely high for months (pushing the Oscillator to a very low level) – the most extreme since April 2020. Volume just started calming down – a common behavior after panic bottoms and the start of a new lower-Volume/calmer rally phase. Look how much room there is until the oscillator reaches the “red zone” – lower volume could persist for weeks, maybe with no effect on the rally. The fact that Traders are concerned about volume reflects the skeptical mood more than anything else.

A good anecdotal example – this was one of the top featured stories on Bloomberg in early April 2021: “Eerie Equity Calm Puts Wall Street on High Alert for Next Spark / The quietest week in stocks so far in 2021 has Wall Street wondering what will break the calm.” Personally I’d like to see a headline with the opposite: “Best week in stocks has Wall Street in a frenzy over how far this unstoppable Bull could run.” (Some historical trivia: there was a headline like this in September 2018, right before markets dropped 20%. And at the February 2020 top, a magazine put stampeding robot Tech Bulls on the cover. I keep it all in a database going back to the early 1900s.) Yogi Berra once said, “You can observe a lot by just watching.” Looking at the headlines today, it doesn’t seem people are terribly excited about Stocks.

“More money went into Stocks over the last 5 months than the last 12 years combined”

That’s one way to put it. Here’s another way to put it:

Jurrien Timmer from Fidelity shared this on Twitter (he shares great content, give him a follow). As of early April 2021, “equity funds & ETFs have barely taken in fresh investments since the March 2009 bottom, despite a 660% return for the S&P 500. Incredible. Bond funds & ETFs, meanwhile, have taken in more than $3 trillion. Begs the question: Where’s the bubble?”


Per the cumulative line above, Total Equity buying was barely positive over the last 12 years. More money went into Stocks over the last 5 months than the last 12 years combined, but it was a pretty low bar to beat. By the way, in 2013 investors also bought more Stocks than any other time combined. The S&P and Nasdaq were up +30% that year. Flows stayed high for the next several years and Stocks kept rallying… people buy Stocks, that’s what happens in Bull Markets.

Ed Clissold from NDR shared a similar chart on Twitter (he shares great content, give him a follow). As of early April 2021, “inflows into equity funds (including ETFs) have been running at a near-record pace.” Yet even with all the buying, note the long-term average just went positive – because flows were strongly negative for the last three years. Is this an extreme? Seems unlikely.


I’ve shared similar charts since late 2020, showing the multi-year flows out of Stocks and into Bonds & Cash. We’ve only just begun to see an unwind of that trend, and no one knows how it will play out. Maybe it will be bad. Maybe it will be normal. But you’ll never see a headline with “Folks are buying Stocks again, this could be normal”.


First of all don’t ever ask anyone for Stock tips, especially on social media. Most Traders & Investors lose a lot of money this way when starting out. It’s only when they decide to develop their own process (through a lifetime of learning) that the real growth can begin. If you’re new to markets, skip the initial “losing a lot of money” part and spare yourself the trouble. It’s ok to follow other Traders and incorporate ideas & systems you like, but avoid trading blindly.

Below are the main Ideas & Themes I’m studying at the moment, and everyone can decide what fits their strategy & risk objectives. There’s no universal portfolio for everyone.

First and most important:

This is a Global Cyclical Bull Market which began in March 2020 and was confirmed in November 2020, when market leadership changed and the majority of Global Markets & Stocks began moving with broad strength. For instance, the below chart spiked into Bull Market territory in late 2020, and then reached almost 100% in early 2021. Many other signals pointed to a Long-Term (1-2 years or possibly longer) rally starting at the time, in November 2020. As of April 2021, the risk of a Bear Market is low. This may change in time. But Stocks usually give sufficient notice before things turn bad. For instance in 2000 and 2007. Even the March 2020 collapse, which caught investors by surprise in terms of severity, was still a classic market Top with weakness in several key areas for weeks before the indexes turned lower. Currently, Stocks would have to deteriorate significantly – perhaps months – for trends to break.

Further, Credit markets would have to deteriorate significantly *before* Stocks become vulnerable to a large correction (which I define as -20% or worse). As Ryan Detrick and Ian McMillan pointed out (both share great content, give them a follow), “credit markets have yet to signal any type of impending weakness for equities. This is good news for investors, due to the fact that HY spreads turning up is typically seen as a leading indicator for said volatility.” Below we see the biggest drawdowns in Equities were preceded by weak Credit markets, with Credit spreads rising for months before Stocks peaked. Currently, Credit spreads are low and trading well (axis inverted).


As we enter Year 2 of a Cyclical Bull Market, the environment should favor Active Managers, Stock pickers and most important – a balanced approach to building portfolios with both Growth and Value Stocks.

The charts below were published by JPM’s Quantitative Research team in early March, showing the collapse in Momentum & Growth Stocks was normal for a new Cyclical Bull Market. (**Remember how Stock leadership usually changes as a new Bull Market begins.)

  • In early March 2021, JPM’s Momentum Crowding Indicator fell to the bottom 2% of readings in 35 years. Momentum & Growth Stocks were a crowded trade in January 2021 and just a few weeks later were completely abandoned. In early March 2021, JPM Strategists said the unwind could be largely complete based on historical patterns, and to date they’ve been right. This should be Bullish for Momentum & Growth Stocks going forward.
  • The Q1 2021 rally in Value Stocks and decline in Growth Stocks caused correlations to converge similar to past cycles. The extreme polarization between “Growth versus Value” (a dominant theme in 2020) has normalized. This means Stocks are moving more on individual merits, with the best companies likely to do well going forward, regardless of factor. This environment favors Active Managers, good Stock pickers and most important – a balanced approach to building portfolios with both Growth and Value Stocks for 2021 and beyond.
  • The normalization between Quality and Junk Stocks is also common for a new cycle. Below is a chart from Bernstein: note the last three recoveries initially saw underperformance of Quality companies and outperformance of “Junk” companies. This makes sense because lower-quality Stocks have the most upside at the start of a new recovery cycle. But what happened in Year 2? See my annotations below – note Quality companies also performed well. This suggests market participation should become more balanced moving forward.
  • Next, a big picture chart going back a century, from Ari Wald at Oppenheimer (he shares great content on Twitter, give him a follow). True to the change in leadership in new cycles, early 2021 saw a big switch out of high-momentum and into low-momentum Stocks. And historically, relative performance stabilized after hitting these levels. Ari wrote: “We’ve found both sides of the [Momentum] factor have posted outsized returns over the next six months when this indicator is at a negative extreme. We believe this argues for higher market highs over the coming months, and stability in the ratio.” Ari published this chart near the Q1 lows for Growth Stocks, right before they staged a big recovery rally.

Last but not least, a handy reference table from Chris Verrone at Strategas (he shares great content on Twitter, give him a follow). The table shows Year 1 & 2 performance of past Cyclical Bull Markets. The Year 1 performance of this cycle was fairly normal in magnitude. Chris was on TV early March and shared the following: “Year 2 of Bull Markets tend to be decent, but not a straight line. That is what I *think* 2021 is going to look like. I think the full year returns are going to be fine, but we’ll see how we get there. My gut says we’re going to get a good correction this year – and we will at some point. My gut says that’s more of a summer story, not a spring story. I think you see more Defensive leadership before big problems start to emerge.” Note the Average Return and Max Drawdown: as Chris said, decent but not a straight line. A good environment for Active Management.



Our main strategy since late 2020 and early 2021 is a focused barbell of Energy/Cyclicals and Quality Growth exposure. I’ve been focused on Equities for now, which is where we see a broader range of opportunities. But we may get more active in Macro later this year, depending on markets.

We are Tactical at times, for instance reducing Energy exposure and adding to Tech in the March selloff, then adding to Energy as it pulled back. But these are adjustments within the intermediate & long-term Trend focus of the portfolio.

• Trends in core Stocks remain up. Quality Cyclical and Growth stocks are still working. Few people noticed, but some high-quality Growth Stocks barely fell in Q1, and were largely unaffected by the big selloff. Meanwhile, *if* some areas of speculation have already peaked, that money could gradually move back to core Stocks. As mentioned previously, my allocation system also maintains & updates a list of Stocks we would not own at a given time. Excluding those names, the opportunity in Stocks still looks good. More importantly, you don’t have to overextend risk in this market for decent potential returns.

• Privately since late January, I’ve operated under the potential scenario of a market melt-up, fueled by (1) Cyclicals trading with limited pullbacks, (2) Core Models with multiple Buy signals, and (3) funds coming back to Stocks gradually as Volatility declined. A decline in realized and implied Volatility, for example VIX trading roughly around 15 or below, is typical in Year 2 of a Bull Market. I shared this idea in early February as Core Models turned up from a Buy signal and VIX tested key support, and shared a long-term VIX chart in March. For now, I think there’s room for the trend to continue. Not in a straight line, but there’s room to continue.

• The scenario for a potential melt-up was supported by multiple Buy signals in Core Models between late January and early March. Don’t underestimate the potential for a blow-off move maybe later in this rally. It would align with a full overbought condition in the S&P RSI50 chart from earlier. It would also push more Core Models to a bigger Top, for instance:

• Stocks can always pull back ~5% at any time. But as of this moment in April 2021, my general view is the risk of an immediate 10-20% decline is low. In a few months the risk may be higher. The market isn’t currently unstable, to the degree it was in early 2020 or other periods preceding large losses.

• Stocks are in a low volume rally, with falling Volatility and increasing liquidity – supportive factors for now.

Rates could remain rangebound for a few months. I shared this view as Bonds began to stabilize from late February to early April. Bonds had one of their biggest drawdowns in history (for reference TLT was down -26% from its highs). In most of the nine cycles since 1962 (the start of my data), Bond Yields peaked and stayed in a range during Year 2 of an Equity Bull Market. In some cases they even fell sharply. What if Bonds still have a place in a diversified portfolio?

Real Yields are very supportive for Stocks over the medium-term. Real Yields are far from levels which caused trouble for Stocks previously, for instance in 2015 and 2018. For reference, the U.S. 2-Year Real Yield went positive in 2015 and 2018. Both times, Credit markets were weakening and Stocks traded poorly with large drawdowns. Today the 2-Year Real Yield is -2.50% (negative). Don’t underestimate how far Stocks could go with this favorable backdrop.

• The U.S. Dollar has negative momentum for now. I’m not forecasting a decline, but if DXY were to reach the ~87 area eventually, I’d look for signs of stabilization and opportunities to build exposure in the Macro book. Or maybe the Dollar will stabilize sooner, we’ll see. An intermediate-term bottom in the Dollar could align with a Top in Stocks. But let’s stay focused on the current market and what’s happening now.

Precious Metals and Miners are an asymmetric bet on Rates stabilizing & a semi-weak Dollar, and could have good upside potential. Since sharing this view previously, we’ve seen momentum build in the group. This is important price confirmation from the market. We have Metals exposure in the Macro book and some quality Gold & Silver Miners in the Equity book. As with any position, risk is defined.


I wrote this in October 2020 and think it’s more applicable than ever:

“2020 has been characterized by Speculative bursts around brief/unsustainable narratives. Stories spread faster than ever, reaching consensus rapidly, running out of steam and reversing just as quickly. Increasingly, it looks like an ideal world for Active Management. Adaptation is key.”

“There’s enough evidence to suggest 2021 will require more Active Management capabilities and resources, including effective, transparent rules-based systems for fast & flexible decision-making as markets shift.”

I believe these skills will be valuable as 2021 progresses. Many Traders & Investors haven’t yet adapted to this environment, and sometimes get caught in short-term stories with no lasting impact on the market.

As we enter Year 2 of an economic recovery and Cyclical Bull Market, Stocks are trading more on individual merits. This environment has favored Active Managers and good Stock pickers. It has endured since November 2020 and I think it will continue for the foreseeable future.

Follow the Stocks – and when the winds change, we will adjust our sails accordingly.

Good luck, and until next time,


Thanks for reading.

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