Trade of The Week - MacroVoices #509

Key Concepts

• European Defense Spending Cycle: The ongoing increase in defense budgets in Europe, driven by geopolitical necessity and long-term fiscal policy.
• Asymmetric Trading: A trading strategy focused on setups with limited downside risk and significant upside potential.
• Santa Rally: A historical tendency for stock markets to rise in the final weeks of the year.
• FOMC Meeting: The Federal Open Market Committee meeting, a key event for US monetary policy decisions.
• Dollar Breakdown: A significant decline in the value of the US dollar.
• Reflation Trade: An investment strategy that benefits from rising inflation and economic growth.
• Backwardation/Contango: Market conditions in futures markets where prices are lower for future delivery (backwardation) or higher (contango).
• Symmetrical Triangle Formation: A chart pattern in technical analysis that suggests a continuation of the existing trend.
• Dead Cat Bounce: A temporary recovery in the price of a declining asset, which is then followed by a further decline.
• Copper Demand: The strong global demand for copper, particularly from Asia.
• Treasury Yields: The interest rates on US Treasury bonds, which are influenced by monetary policy and market sentiment.

European Defense Spending and Trade Strategy

Marco's analysis suggests that Europe's defense spending cycle is far from over, despite recent profit-taking in the sector. He argues that defense budgets have become a political necessity and a long-term fiscal policy, indicating a fundamental upward trend. Patrick Sesi has developed a "trade of the week" to capitalize on this thesis, focusing on a bullish European defense position.

Trade Details:

• Target Asset: Airbus (trading on the Paris Exchange).
• Rationale: Airbus has experienced a ~16% peak-to-trough correction, presenting a constructive entry point for a resumption of the bull trend into Q1 of next year.
• Strategy: Long Airbus stock with downside convexity to mitigate near-term tactical risks.
• Specific Tactic: Overlaying a January 190-170 bare-oot put spread, trading around €3. This spread offers protection, allowing profits from the put spread to reduce the cost basis of the long stock position if there's a further dip.
• Accessibility for North American Investors: Acknowledges that most European defense ADRs lack listed options, necessitating a "delta 1" form for North American investors. However, individual stocks and their options are liquid in European markets.

Asymmetric Trading Challenge

Building on the success of the "trade of the week" segments, Patrick Sesi is launching a year-long initiative called the "Asymmetric Trading Challenge" in 2026. The goal is to help serious traders master asymmetric setups in real-time with guidance and accountability. This program will include live training, trade breakdowns, and a system to protect and grow capital. More information can be found at bigpicturtrading.com/challenge, with a special webinar on Tuesday, December 16th at 4:00 PM Eastern Time.

Equities Market Outlook

S&P 500 Analysis:

• Current Momentum: The S&P 500 has traded above its 5-day moving average since November 21st, indicating strong upward momentum. It has also moved back above longer-term moving averages, including the 50-day moving average.
• Santa Rally Potential: The question remains whether the market can achieve new all-time highs by year-end.
• Eric Townsend's View: Eric is on the fence, noting that while the market looks good, short-term stochastics are topping out. He anticipates a potential dip below the 5-day moving average and believes the 50-day moving average will likely hold. A close below the 50-day would be a concern.
• Patrick Sesi's View: Patrick believes the S&P 500 has officially had its correction (a 6% dip). He sees an equal chance of a breakout to higher highs or a larger topping formation. The deciding factor will be the FOMC meeting and delayed jobs numbers in the middle of the month, which will indicate the Fed's stance on keeping the economy going. He predicts a holding pattern for the next week, with range-bound trading until these data points are released.

US Dollar (DXY) Outlook

• Short-Term Trend: The short-term trend line from late September has broken to the downside, but without significant acceleration.
• Consolidation vs. Breakout: The dollar is on the fence between continued consolidation and an upside breakout.
• Headline Driven Outcome: The ultimate direction is expected to be headline-driven, with potential influence from "Trump and Bessant's next moves."
• Key Technical Signal: This is the first close below the 50-day moving average in months, which is significant.
• Implications of a Dollar Breakdown: A sustained dollar breakdown would signal that the reflation trade is still on, making overweighting emerging markets, international equities, and commodities a strong theme. The key is to watch if this close below the 50-day is more than a one-day dip.

Crude Oil Outlook

• Cushing Inventories: Cushing inventories are at operational minimums.
• WTI Curve: Backwardation at the front of the WTI curve is muted and short-lived, flipping into contango thereafter.
• Fundamental Outlook: Fundamentals are considered decidedly bullish.
• Invisible Hands: There's a possibility of "invisible hands" keeping oil prices low through the midterm elections, as discussed with Marco.
• Patrick Sesi's View: Crude oil has been selling off for nearly 40 days without accelerating to lower lows. Despite potential catalysts like a Russia-Ukraine peace deal or Venezuela escalation, oil has held up well. Momentum indicators suggest downside momentum has dissipated and reversed. Energy stocks are seeing positive flows. Patrick speculates on oil closing above $60 in the coming weeks, especially with a weak US dollar. However, oil is still in its primary downtrend and below the 50-day moving average, making this an early speculation for a potential turning point.

Gold and Precious Metals Outlook

Gold Analysis:

• Breakout Confirmation: Gold has confirmed a breakout from its symmetrical triangle formation to the upside with vigor, as expected.
• Short-Term Stochastics: Short-term slow stochastics have moved from oversold to overbought and are starting to roll over, suggesting a pause.
• Pause Duration: The key question is the duration and depth of this pause.
• Measured Move Targets: If new all-time highs are reached, measured move targets are in the $4930 to $5120 range.
• Eric Townsend's View: He believes the correction is likely over but anticipates a dip in the next few days before the rally resumes due to the rolling over stochastics.
• Patrick Sesi's View: Gold's consolidation has lasted 45 days, which is shorter than previous corrections (2-4 months). He is bullish on gold and looking for bull continuation.
• Supporting Signals:
  • Silver Futures: Silver has already broken out of its pennant with strong momentum, driven by silver shortages.
  • Gold Miners: Gold miners have broken to higher highs, indicating momentum.
  • Platinum and Palladium: These metals are also starting to turn up.
• Timing: Patrick speculates that gold may attempt to break out to an all-time new high in December, likely after the FOMC and jobs numbers release, potentially after a two-month consolidation phase. He is bullish but emphasizes timing.

Uranium Outlook

Uranium and Uranium Miners Analysis:

• Long-Term Fundamentals: Eric Townsend is extremely bullish on uranium and uranium miners long-term due to excellent fundamentals.
• Short-to-Intermediate Term Concerns: Eric is nervous about the short-to-intermediate term charts.
• Uranium Miners: The charts for uranium miners look "dead catish" to him, despite recovering. They haven't retraced as much as a 38.2% Fibonacci retracement, and short-term stochastics are already overbought, suggesting a potential dip or consolidation.
• Potential for New Lows: If there's broad market weakness, new lower lows could occur.
• Buying Opportunity: Any downside weakness in the short term is seen as a buying opportunity, though the timing and depth of the dip are uncertain. Eric notes that uranium is lagging the S&P 500, which is unusual as it often bottoms and recovers before the broader market.
• Patrick Sesi's View: Uranium futures have been consolidating and could bullishly break out. Uranium stocks have corrected 50% of their prior rise. While there's no clear bull continuation pattern yet, the deep correction is attracting "buy on dip" traders. These price levels are considered interesting and worth watching, even if a breakout isn't imminent.

Copper Outlook

• Fresh Breakout: Copper has experienced a fresh breakout to new cycle highs.
• US High-Grade Copper vs. LME: The move on US high-grade copper futures pales in comparison to the much greater action on the LME, indicating staggering demand for physical copper.
• Asian Demand: Goldman Sachs attributes this to Asian demand, with Taiwan and Korea as immediate buyers, but ultimately winding up in China. This is seen as an important signal given China-Japan tensions.
• Technical Breakout: It's a significant breakout to higher highs, having broken all previous highs except for a tariff-induced bump.
• Measurement: Copper is measuring out for a test of the $5.75 level on the upside. Retesting the July high caused by the tariff bump is 100% on the table.
• Conclusion: A decidedly bullish breakout, with copper plays performing well. Copper is considered a "hot place to be right now."

10-Year Treasury Note Outlook

• Yields Settling In: Treasury yields have settled in.
• Dollar Breakdown Influence: The impact of a potential dollar breakdown on short-term yield trends is a key question.
• 4% Level: The 4% level has more or less held.
• Current Position: Yields are hovering at the 50-day moving average and a descending trend line.
• Technical Signal: The ability of yields to break higher from here will be a significant technical signal.
• Pivot Potential: The market will be watching for a pivot in what has been a generally bullish Treasury bond market for the last six months, and whether this will result in higher yields.

Conclusion and Call to Action

The discussion highlights several key market themes, including the ongoing strength in European defense, the potential for a year-end Santa rally in equities, the uncertainty surrounding the US dollar, the mixed signals in crude oil, the bullish outlook for gold and precious metals, and the short-term caution in uranium despite long-term optimism. Copper is identified as a strong performer with a bullish breakout. The 10-year Treasury note market is at a technical juncture, with the dollar's direction being a crucial factor.

Listeners are encouraged to register at macrovoices.com for research roundup emails, which include download links and supporting documents. Patrick Sesi's Monday webinars offer detailed breakdowns of the "trade of the week." The "Asymmetric Trading Challenge" is being launched in 2026 for serious traders. The show is made possible by sponsorships from bigpicturtrading.com and Fourth Turning Capital Management LLC.