Trade of The Week - MacroVoices #518

This is Macrovoices, the free weekly financial podcast targeting professional finance, [music] high-net-worth individuals, family offices, and other sophisticated investors. Macrovoices [music] is all about the brightest minds in the world of finance and macroeconomics telling it like it is. Bullish or bearish, no holds barred. Now, here are your hosts, Eric Townsend and Patrick Szna.

>> Eric, it was great to have Annas back on the show. Now, listeners, you're going to find the download link for the postgame trade of the week in your research roundup email. If you don't have a research roundup email, that means you have not yet registered at macrovoices.com. Just go to our homepage, macrovoices.com, and click on the red button over Annas's picture saying looking for the downloads.

Patrick, Dr. Annis made a compelling case that crude can stay more resilient than the oversupply narrative suggests, but the tape is still looking hostage to geopolitics and headline risk. So the real question in my mind is if you buy his framework, what's the cleanest way to position for it without taking blunt delta 1 exposure in a market that could whip around on a dime?

Eric, coming out of Anas's interview, the setup I am focusing on is a market that can stay rangebound in the 60s but still carries real headline-driven upside risk. This shows up directly in the option surface as there is a distinct right tail skew where upside calls price rich volatility relative to the downside. Instead of paying full freight for upside optionality, I'd rather use the skew to finance a bullish structure with defined risk and minimal carry drag. So, for this week's trade of the week, I'm looking at a bull call spread in the WTI options reference to the April 2026 crude future trading at 64.15. I'm looking at the March 17th, 2026 expiration options with about 40 days till expiration. So, here's the trade of the week. A $12 in-the-money bull call spread. We buy the April 60 in-the-money call for $6.15, which has an implied volatility of 44.7% and sell the April 72 call for $2.25. 25 cents being priced at an implied volatility of 58.4%. That's a 60x72 bull call spread for a $3.90 debit or about $3,900 per one lot spread, a thousand barrels. The key feature is that you're buying lower implied volatility and selling higher implied volatility. And here's the key. The break-even comes in around 63.90, which is about 25 cents below the current futures price of 64.15. In other words, you don't need a rally just to get to flat at expiration while still maintaining a better than a 2:1 payoff profile. From here, your payoff is clean and defined. Your max loss is $3.90 if crude settles at or below $60 at expiration. A max profit of $8.10 if crude oil settles at or above $72. And most importantly, if crude oil is unchanged at expiration, this structure is still slightly profitable because it's an in-the-money spread with break-even below the market. So the intent is simple. Stay constructive on crude. Use the right tail skew to keep carry costs low and participate in upside over the next six weeks with a clearly defined risk.

All right, Eric, let's dive into these equity markets.

Well, Patrick, I'm reading a lot of pundits saying that they think equity markets are generally undergoing a drying up of liquidity and bearish predictions are starting to replace the chorus of permabulls that were dominating the news flow until now. I'll be honest and say I really don't have any strong short-term conviction in either direction on the broad equity market. But longer term, I'm still of the strong opinion that the great stock bull market of the early 2020s is in its late stages, if not winding down, while the great commodity bull market of the late 2020s is just getting started. I can't call the short-term timing, but I think that's the big picture. Patrick, what are your thoughts?

Well, Eric, I want to focus on the S&P 500 purely from a quantitative perspective and a technical perspective. At this stage, the S&P 500 has found substantial overhead resistance over the last few months and that has diverged from the S&P 500 equal weight index which has continued to progress higher as there has been a clear sector rotation getting underway. And so what we're with with this overhead resistance, one thing that we made very clear over the last few weeks was how important the MAG7 and the MAG7 earnings were going to be on the path in order for the S&P 500 to progress to 7100 to 7,400 on the upside. We would have needed the MAG7s participating. They're one-third of the market capitalization of the S&P and two-thirds of the capitalization of the NASDAQ 100. And so we have a scenario where where they we really needed to see a positive tailwind come from there. Now we've seen almost all of these earnings. There's obviously Amazon still ahead of us, but overall they have generally disappointed. Now what I want to start off is page five looking at the tech software ETF which is the symbol IGV. This is your Microsoft, Oracles, and so on. In there you can see we have a 30% crash in this ETF as it has broken all support lines and heading right back to liberation day lows. There is a clear breakdown happening in the space. This is obviously influencing the NASDAQ 100, which is on page four. And what you can see is after a double top, we have now broken the December and January lows and closed below the 50-day moving average at levels where CTAs and voling funds will actually start to do systematic selling. And so we are in a situation where the the underpinning support of the market is massively deteriorating. Now, on page three, where I have that S&P 500 chart, we can't technically still see the breakdown underway, but we have the first attempt to close below the 50-day moving average and a very large amount of systematic trading that will start to hit the bid below 6,800. This is an incredibly fragile moment. Now, is this a doomsday bear market? No. We had an amazing bull market from April all the way up to here. In and inevitably markets correct, no different than we see on all sorts of the other commodities and so on. At some stage we're going to have a correction here and the question is did the disappointment of these MAG 7s make it more inevitable at this stage? If we start breaking those levels, we can see spikes in implied volatilities. If we see breakdown in financials, if we see junk bonds breaking key support lines and see credit spreads starting to widen, this can turn into a bigger correction. Something that could be not just a 5% dip like we saw back in November, but it could become a 10 plus% market correction that would of course in the end wherever it stalls out would be a buying opportunity. But at this stage, the market looks highly vulnerable going here into the first week of February.

All right, Eric, let's touch on the dollar.

Patrick, the bounce off the long-term lows has been vigorous for the last week. So, an argument could be made that the September 17th and January 27th lows on the dollar index form a bullish double bottom pattern. But in my view, this is a headline-driven market, and I don't weight technical analysis as heavily as I usually would. I think we had a solid downtrend in play that was probably set to take us to new lower lows. But then the market's reaction to President Trump's nomination of Kevin Worsh for Fed chair to replace Jay Powell brought on a sudden reversal that's all about the market's perception, which I think is wrong, that Worsh will be much more hawkish than President Trump expects him to be. If that's the right interpretation, in other words, if my variant perception is correct that Worsh is actually going to give the president whatever he wants, well, you know, clearly that's a speculative view, but if I'm right on that, I think the the stage is set for the rally to continue only until the market figures out that Worsh isn't going to be the permahawk that many market participants perceive him to be. Then I think we would eventually move to new lower lows. The question is, how long does it take for the market to figure out that they've got it wrong and that Worsh is going to give Trump whatever he wants. At least that's my view. Time will tell.

Well, Eric, I want to look at the dollar again, just purely technicals. We had a break to a lower low from last year, which has really opened the downside window. Now, this bounce is the big tell. We came back toward the 50-day moving average, back towards the 50% retracement and a level where what were last year's lows act as overhead resistance. This 97.12 to 98 level is going to be the telltale. If the story is that the first quarter of the year is the dollar bare market resuming, we should see this be a key failure point. And so this is kind of a make-it-or-break-it moment. If the dollar surpasses 98 and goes back into the trade range, then it neutralizes the sell cycle. Doesn't necessarily make it bullish, but it means that the dollar weakness is not a first quarter story. And so, we're going to literally get the most valuable information right here, right now. Let's see what happens at this level.

All right, Eric, let's talk crude oil. Obviously, we heard from Anas, but how do you size up this current market?

>> Well, obviously the feature interview covered crude oil in detail, so I won't belabor the fundamentals. My feeling is that there's still a lot of geopolitical premium in the oil market, and we've got to wait to see whether or not President Trump makes a kinetic strike on Iran to know what the next leg is going to be. That means the market could go either way in a hurry depending on what happens on that geopolitical front. Now, if we get a de-escalation of geopolitical premium that takes us all the way back down to $55 WTI, I think that's a buy. Meanwhile, my time spread trade long Z6 Z7 continues to perform beautifully, profiting well over $2 since I opened that trade several weeks ago. And yes, two bucks doesn't sound like much, but that's a pretty big move on a one-year time spread in a relatively short time frame. Finally, Dr. Annis requested a President Trump/AI/oil and gas/nuclear follow-on interview. I love the subject matter, but we can't do it on Macrovoices. We have scheduling rules that we don't put the same guest on, you know, two weeks in a row or in rapid succession. We try to keep them separated by a few months. So, let us know if you want that topic by replying to the tweet announcing this episode on X. Tag Anna Alhaji as well. If there's enough interest, we'll organize a Twitter Spaces or something and you know, announce it separate from the podcast. So follow along on Twitter or X as it's called these days if you want to get in on that one as well.

Well, Eric, obviously we already touched on this during the trade of the week. Overall, the pattern I see here is that old dips are being bought. Every time it comes in with a two $3 drop, the buy-on-dip traders come right back in. Now, obviously I am not super bullish. I think Anas is right that there's political influences here, but short-term liquidity squeezes could send oil up into the 70s on WTI, even though it probably will revert after making such an advance. This is where I want to be tactically short-term bullish oil. But at the same time recognizing that you probably have a ceiling on top of any advances that will be met with some selling if we do get those bull impulses.

All right, Eric, we got to talk about gold here. Boy, oh boy, Patrick, talk about a whip-saw. Now, the Kevin Worsh nomination was just the proximal catalyst, not the cause. The reason this happened, the real reason is simply that the market had moved up way too much, way too fast in a parabolic move that made this outcome both obvious and likely. The good news is that this was really easy to see coming. And as regular listeners know, I've been pounding the table for a couple of weeks, saying this market was ripe for a sharp correction to fill the gap around 4600. Now, when I recorded last week's podcast, April gold futures were trading above 5600. But by the time that episode was released just a few hours later, they had already moved $500 lower. The selling started right at the European open, which was just a few minutes after I recorded last week's podcast. I said last week that a $1,000 correction was entirely possible. Well, we got closer to a $1,200 correction instead. And to be clear, I'm not at all certain that the bottom is in yet. The classic blow-off pattern starts with a really ugly down candle. Well, that started at the London open last Thursday and continued through Friday. Then it got really ugly on the Sunday night overnight session into Monday morning. Next comes the bounce, typically around 50% of the overall move down. And this one has been textbook so far. The 50% retracement level is 5024.5024 on the April futures contract. On Monday and Tuesday, we rallied up to just over 5100. We're just above that 50% level. Then the rally failed in textbook fashion, suggesting perhaps it was a dead cat bounce after all. And the price dropped right back down to test the 38.2% fib retracement line, which is at 48.82.82 on the April contract. It bounced from there on Wednesday afternoon in New York trading and started to rally into the extended trading hours session on Wednesday evening, but it failed again just above the 5024, 50% retracement level that set up the beginning of a series of lower highs and lower lows. From there, it dropped to well below the 38.2% level that it held during regular trading hours. And frankly, this pattern portends a retest of the 4423 low that we saw early in the wee hours of Monday morning. Now, at recording time, it was trying to stage a bounceback. And I'm recording just before the European open on Thursday morning. It's trying to stage a bounce back above the 38.2% level. Let me turn my head and check the chart. Okay, we're above the 38.2% level, maybe halfway back up to the 50% level, but even before the European open, it looks like it's starting to stall. And what we saw last week, as well as on the earlier correction this week, is it was right on the European open at 4:00 a.m. Eastern time when things really started to get ugly and take a turn to the downside. So, we'll have to see what happens. But in order to not have a retest of the lows, we really need to get above the 50% line. That's 5024. And preferably what we really need in order to kind of create confidence that maybe the bottom really is in would be a daily close or better yet a weekly close perhaps on Friday above the 61.8% fib level which is 5166. That's 5166 on the April futures contract. As of recording time, the pattern since the European open on Wednesday when the bounce stalled and reversed looks more like a series of lower highs and lower lows. So, if we don't get back above the 50% retrace line, which again is 5024 pretty quickly and stay above it, then we're likely headed towards a regular trading hours retest of the 4423 low, which was right at or approximately close to the 50-day moving average.

Now, as I've said many times before on MacroVoices, I predict that this great gold bull market will eventually end in tears with a gigantic blow-off top. And to be clear, what we've seen in the last week is exactly what the first stages of what that exact kind of blow-off top would look and feel like. But I don't think this is the big one. The fundamentals are still strong and the Trump administration's bold policy initiatives will continue to ferment central bank buying. Now, of course, it's always possible that this really was the big one and it will be another decade before we see 5600 again, but I think that's a 5% probability at best. My 55% likely base case scenario is that we'll consolidate here for several weeks to a few months in a pattern similar to the $3500 top back on April 22nd of last year, which wasn't topped again until early September. And to be clear, that 55% base case of a consolidation might include a new lower low than the 4423 print that we saw on Sunday night into Monday morning. In fact, I think a retest of the 50-day moving average during regular trading hours is likely before this is over based on the way the tape looked at recording time. Again, that was before the European open. Sometimes things take a turn in one direction or the other when Europe opens. So, look at what the direction has been. I'll give you my number as I'm recording here is 4940. If it's gone substantially above that by you know early morning New York time on Thursday, well, maybe we're seeing that the bottom really is in. If it's below the 38.2% level, which again is 4882 on the April contract, that would suggest that we're headed toward a retest of the overnight lows, which again were 4423. I'll assign a 30% probability to a substantially deeper correction well below the 50-day moving average. Perhaps testing the 100-day moving average at 4263. That's 4263. Or even lower if the US dollar rally continues in earnest. And that leaves 10% remaining for the unlikely scenario that we just power out of this after the market figures out that Kevin Worsh is going to give Trump whatever he wants and we see new highs above 5600 within the next few weeks. Again, that's an outlier. Definitely not a prediction. But if that were to happen, it would be profoundly bullish looking forward because it would mean that the buyers are stepping in and buying the dip despite the emotional carnage that just happened to everybody with this wash-out that happened last Thursday morning as our editors were preparing the podcast. So assuming this is not that 5% end-of-the-bull-market signal, and I really don't think it is, this should be welcome news to long-term bulls. I know it hurts. As I've said repeatedly though, in recent weeks, when markets go parabolic up, the more they go as quickly as gold was running, the more tail risk is created as a result of that parabolic rise. Consolidating for a few weeks and shaking off the overbought technicals to set the stage for the next leg higher should be seen as welcome news in the big picture, notwithstanding how gut-wrenching this was for all of us longs. On a final note, for heaven's sake, don't give any credence to all the knuckleheads on X crying about market manipulation. Of course, precious metals markets are manipulated, as are all markets, but this was a super easy-to-see-coming technical correction in response to an extreme overbought technical setup. That's why it was easy to see coming and that's why I've warned you about this exact scenario of a sharp correction to fill that gap at 4600 for the last two weeks in a row right here on this podcast. Now, this one ran $175 deeper than my call. You can't predict these things exactly, but it ended so far at least with a perfect test of the 50-day moving average. So, all of this is textbook technical analysis stuff. No evil bullion bank conspiracy required to explain it or to predict it as we did predict right here on Macrovoices.

Well, Eric, the one thing that I really tried to emphasize was that the parabolic moves always have short duration in terms of time and and correction was inevitable even if it could have come at from much higher levels. Well, we got this correction. The thing here is that with gold having this deep of a correction, the one thing I would want to predict is is that now gold is going to be in a multi-month consolidation. There's a very reasonable chance that the low that was established here near 4500 is going to be the low. And even if it temporarily broke to a lower low below 4500, it's probably going to be a short-term trip down there. But likely the remainder of the first quarter is going to be gold absorbing and consolidating and basing from from this big parabolic move. And so I think that while dips can inevitably be bought on gold, I don't think that there's any rush or urgency to be putting on brand new gold positioning unless you're willing to grind it out for months waiting for the next turn-up in the gold markets.

All right, Eric, let's talk uranium. A lot has happened since last week's interview with Justin. How are how do you size this up?

>> As regular listeners know from last week's feature interview with Uranium Insider editor Justin Hune, I couldn't possibly be more bullish on uranium long-term. But we took a beating this week and the reason was a sudden retreat in the spot price of uranium which had briefly moved into backwardation touching almost $100 even as the long-term contracting price was still in the high 80s. Now, Justin's hypothesis, and I agree, is that what happened here is that Sput's big purchase of physical metal this past week was so widely broadcast and anticipated that more traders tried to front-run it than Sput actually had pounds to buy. So, imagine Sput needs to buy 3 million pounds, but a bunch of front-runners buy 10 million pounds expecting that they're going to be able to unload it on Sput. They know that that date is coming. They front-run it. That runs the price up to almost a hundred bucks. But now there's guys that are selling 10 million pounds and Sput is only buying 3 million pounds. The other 7 million get sold off. That takes us right back down to the low 90s, which is exactly what's happened. So that would explain why the price had been so strong in the prior week and why it sold back off so sharply after the bag holders got left holding that proverbial bag when there were more front-runners selling than Sput had budget to buy. Now I just made the number up of you know 10 million and 7 million and so forth. The point is everybody knew Sput had a big buy coming. This was actually Justin's thinking not mine so I don't want to take credit for it. His hypothesis is what happened here is more front-runners than there was metal to buy and that resulted in this whip-saw and we're now paying for it in terms of a move back down. But hey, it's another opportunity to shake off the overbought stochastics and RSI and that swing lower creates a buying opportunity. I added to my Cameco longs at 110.85 on Wednesday. I was lucky enough to get filled just barely above the low of the day, but I won't be at all surprised to see a new lower low before this swing trade is over. So, this welcome pullback created both a buying opportunity and shook off the overbought technicals, clearing the way for the next move higher. And to be sure, even if gold is going to sell off further, it doesn't do anything to damage the fundamental case for uranium. Now, what it does do is potentially create a contagion and a feedback loop because a lot of the same people own gold that own uranium. So, if they get massacred in the gold market, and that could be coming next if there's a deeper correction. If we get into forced selling and margin call liquidations and so forth, you're going to see people selling uranium not because they want to, but because they have to, because they're covering margin calls on their non-performing gold positions. So don't be surprised if we see more weakness in the uranium market if there is further weakness in the gold market.

Well, Eric, I agree that overall uranium should be bought on dip. We clearly have a very violent correction here. We're approaching some key Fibonacci retracement zones. So let's actually see whether it's bought on dip here or not. If if this is going to continue to be bullish, then we are literally at levels where the bulls should be buying dips and creating support. So let's see whether that develops here over the next week.

Finally, Eric, let's just touch on copper.

Well, Patrick, I said last week that that gigantic big green candle on Wednesday as I was recording north of $6.50 was super bullish on the condition that it lasted through a weekly close above $6. Well, needless to say, and unfortunately for the longs, that didn't happen. Not even close. So, that bullish signal is negated and the chart, frankly, is starting to look kind of top-heavy. I don't have any predictions, but I'll be watching Dr. Copper closely in coming weeks. Patrick, what are your thoughts?

Well, the one technical thing I want to observe about copper here, Eric, is that it's been on an intraday basis very correlated with gold. You know, it peaked out almost the same time as gold. A rapid sell-off, ended almost the same time as gold, put in a short-term low. It bounced the same way at gold. Like, what I'm not certain why copper is so correlated on the very short term. Maybe it is just a short-term thing, but right now copper seems to have very much the same behavior as gold. And if if it continues and we do anticipate gold to be consolidating for months, will that also be the case for copper? It'll be very interesting to see.

>> Patrick, before we wrap up this week's show, let's hit that 10-year Treasury note chart.

>> Yeah. Finally, on that 10-year Treasury yield, I wanted to simply point that the bond markets have been so quiet and when we see this kind of volatility in the intermarkets and see everything moving, including the dollar, including commodities, including the markets, when will the bond markets react? I I'm shocked that they have been so quiet, but I don't think they will continue. If we see that there's equity risks and and all of these things are cracking, I think bond yields here have a legitimate chance to start moving.

Folks, if you enjoy Patrick's chart decks, you can get them every single day of the week with a free trial of BigPictureTrading. The details are on the last pages of the slide deck or just go to bigpicturetrading.com. [music]

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