Explosive Setup Confirmed?

Well, for the first time since beginning our newsletter in April 2022, we have used the headline “Explosive Setup.” The primary reason is that technical signals across asset classes have implied that a big move is due, and we expect the move to be synchronous.

Furthermore, the move is expected to occur in the next 15-20 trading days or in the next three weeks.

We are also revamping our trade framework, and from now on, we will provide a more detailed rationale for executing a trade. The framework will be as follows:

• Macro Trigger: Most of our trades are based on emerging macro data and our view about how the US and the global economy will perform going forward.

• Technical Trigger: In the last few months, we have incorporated technical analysis into our framework to streamline our trade and investment portfolio. It has done wonders, especially when we predicted the top in Gold in September/October and the Dollar and yields recently.

• Narrative Trigger: This is the first you will find anywhere. We have used this brilliantly, especially when the narrative is skewed towards a single side (bullish/bearish).

• Positioning Trigger: All of the above triggers are matched with the market positioning as well (recently, DXY was the most crowded trade, and that’s when we closed our long dollar trade).

Our paid subscribers are very well aware that we keep 15-20% of our portfolio for short-term trades (sometimes 2 days to a month), and the recent trade that we took (discussed later) was done after deliberate observations across the above-mentioned “triggers.”

Let us begin with today’s newsletter and discuss the “technical setup” that’s developed across the board.

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US/ Precious Metals/Equities!

Since the US had a dearth of important macro data this week, we will conduct a comprehensive analysis of the US housing market today.

Why is housing important?

• HOPE Model: Long-time readers know we believe in the HOPE (Housing→ Orders→ Profits → Employment) model developed by renowned Michael Kantro. Thus, if there is weakness in the housing market, the cyclical economy suffers, albeit with a lag of 15-18 months (employment is the last).

• Market Chatter: There has been recent chatter among macroeconomists and market participants about the “consistent” weak housing data in the last few weeks. Thus, it’s imperative to dig deeper.

Note that there is also an element of seasonality, as we discussed last week. While broader macro data surprises on the upside in January, housing remains weak in late Q4/Q1 due to the weather in most parts of the US.

Let us begin!

For those who are not aware, the housing works in the following way:

Permits → Starts → Units Under Construction → Inventory (depends on sales).

So, to begin with, there has been a significant increase post-COVID as permits take a long time to be granted. In the last few years, the average time taken for permits to start a project has ranged from 8 to 10 months.

Furthermore, the completion time for multi-housing, depending on the project size, is another 15-20 months. For single family housing, it’s around 12-14 months.

1. Permits: As we can observe, permits soared massively in 2021/2022. Thus, the projects that applied for permits in the housing bull cycle (multi-housing) in late 2021/early 2022 (before the Fed began the draconian rate hikes) completed in H2 2024 (last year).

   

And as those completions rose last year, we saw weakness emerge in the housing data.