Capital Cycle: The Base & Catalyst

1. The Premise: The Base & Catalyst

First-level thinking chases assets that are already moving. This is a low-probability game of entering late and exiting in a panic. We play a different game. This playbook is our quintessential "Investolator" strategy, designed to blend the deep patience of an investor with the precise timing of a speculator.

The goal is to identify high-quality accumulation bases in stocks, ETFs, and commodities where institutions are quietly building massive positions. We stalk these assets with discipline, waiting for the one thing that ignites a powerful markup phase: a clear, undeniable catalyst. By combining the art of base detection with the science of catalyst timing, we position ourselves to capture the most explosive part of the trend, right as it begins. This is a playbook about patience, precision, and positioning for powerful, catalyst-driven breakouts.

Theoretical Foundation

The Investolator framework synthesizes three powerful methodologies:

1. Ted Warren's Base Formation Principles: Focus on institutional accumulation patterns and volume-price relationships during base formation

2. Stan Weinstein's Stage Analysis: The four phases of market cycles (Base, Advancing, Top, Declining) provide our structural framework

3. Capital Cycle Theory (Edward Chancellor): We align with the principle that the best returns come from investing when capital is scarce and exiting when capital is abundant

This convergence of methodologies works exceptionally well across all asset classes because it captures the universal dynamics of capital flows, regardless of whether we're analyzing technology stocks, agricultural commodities, or precious metals ETFs. The framework automatically adjusts for the different cycle lengths and volatility profiles inherent in each asset class.

2. Operating Parameters

• Asset Class: Individual Stocks, Sector ETFs, Commodity ETFs

• Timeframe: Base Detection on 2W, 3W, 1M charts. Entry execution on Daily/Weekly

• Style: Base Breakout & Trend Momentum (Long-Only or Long/Short)

• Primary System: MXC Duo Lens Base

• Supporting Indicators: Adaptive RSI, Price Pressure, RVFI, Volume Pressure (VTM)

• Position Sizing & Scaling: We operate a focused portfolio of 6-10 high-conviction positions. This implies an average target position size of ~12.5% of the portfolio, though the final allocation is at the user's discretion. We scale into this target size using the following three-phase protocol:

  • Phase I (Breakout): 40% of the target position size on the initial L signal

  • Phase II (Confirmation): 40% of the target size after the initial breakout holds and successfully retests, confirming it is not a fake-out

  • Phase III (Strength): The final 20% is added from a position of strength, once the trade is up 15-20%

Demo System Access

- data enabled up until April 20th, 2025.

3. Understanding the Signal System

The RISKON Score (Confidence Score)

The RISKON score from the MXC Duo Base indicator is our proprietary confidence metric that assesses the probability of a successful breakout. The score incorporates momentum alignment, volume confirmation, regime detection, and institutional accumulation signatures.

RISKON Score Interpretation:

• < 0.8: Neutral to negative conditions, avoid new positions

• > 0.8: Early positive signal, begin stalking positions

• > 1.3: Strong positive conditions, high-conviction entry zone

• > 2.5: Very strong positive, approaching euphoric conditions (consider taking profits on existing positions)

A RISKON score >1.3 combined with an L signal represents our highest conviction entries.

Example: our revcent buy example, NRT an oil and gas pipeline trust - a stock repressed after a decreasign oil and gas prices, under the pressure to reduce inflation.

Leading Indicator Confluence

While the L (Long) signal is our primary trigger, we monitor several leading indicators that often provide early warning of an impending breakout:

Bullish Leading Signals:

• Price Pressure turning 🟢 bright green (bullish momentum building)

• Volume Pressure showing green accumulation bars (institutional buying)

• RVFI generating green signals (positive volume-weighted momentum)

These leading indicators often fire days or even weeks before the L signal, allowing us to prepare and position our watchlist accordingly.

Bearish Leading Signals (for exits/shorts):

• T (Top) signals from MXC Duo indicating distribution

• Adaptive RSI shifting from red (overbought) to white, signaling momentum loss

• Price Pressure transitioning to 🟡 yellow/🟠 orange (weakening momentum)

• Volume Pressure shifting to red distribution bars

• RVFI showing 🟠 orange/grey zones (institutional selling)

4. Execution Protocol: A Two-Act Play

This playbook is a patient hunt followed by a decisive strike.

ACT I: The Hunt & The Stalk (The Base Phase)

This is where we identify our targets and wait for the perfect moment. The majority of the work is done here, in the quiet before the move.

Signal: This is a two-part signal process.

The Hunt: We use our proprietary market screener to identify a watchlist of assets on high timeframes (2W+) that exhibit:

• Base Quality Score >70

• Accumulation patterns confirmed by multiple indicators

• Institutional footprints via Volume Pressure analysis

The Stalk: We monitor this watchlist for:

• Leading indicators turning bullish (as described above)

• RISKON score climbing above 0.9

• Price coiling in the upper portion of the base

• Volume contracting to multi-month lows

Execution:

• Patience: Do not enter the position yet. The goal is to have the asset on a high-priority watchlist, ready for the catalyst

• Advanced (Private Clients): For our private and family office clients, our affiliated fund managers may deploy advanced options strategies to generate income during the basing phase by using put spread options.

Our process is not theoretical; it is demonstrated in real-time. Consider two recent case studies that highlight our playbook in action: SBSW, a contrarian position in precious metals, and ETSY, a deep value play on the consumer. The charts provide the data-driven signals; our linked research publications unpack the full, second-level thinking and the complete institutional thesis behind each of these high-conviction trades.

SBSW:

The Quiet Roar: Why Smart Money is Stacking Metals (While You're Not Looking)

ETSY:

Etsy: Handcrafted Opportunity?

ACT II: The Breakout & The Ride (The Markup Phase)

This is the ignition event where patience is rewarded with a high-momentum entry.

Signal: The primary entry signal is a high-conviction L (Long) from the MXC Duo Lens Base indicator with:

• RISKON score >1.3 (our strong positive threshold)

• Leading indicators in alignment (2+ green signals)

• Ideally triggered by a fundamental catalyst (earnings, news, sector rotation)

Execution:

• Initial Entry: On the confirmed L signal with RISKON >1.3, execute Phase I of our scaling protocol by entering with 40% of your intended position size

• Management & Scaling: Execute Phase II and Phase III of the scaling protocol as the position confirms its strength. Hold the full position as long as the indicator remains in a RISE phase

• Advanced (Private Clients): For our private and family office clients, our fund managers may utilize proprietary strategies to maximize returns on the initial breakout

Exit Strategy: The Distribution Phase

Primary Exit Signals:

1. S (Sell) Signal: The primary exit trigger from MXC Duo Lens Base

2. T (Top) Signal: Early warning of potential distribution

3. Leading Indicator Divergence: When 2+ leading indicators turn bearish

4. RISKON Score <0.9: Confidence has deteriorated to neutral/negative

Euphoria Exit: When RISKON exceeds 2.0, consider taking partial profits as markets approach euphoric conditions

Exit Execution:

• Long-Only Strategy: Close entire position on S signal

• Long/Short Strategy: Flip from long to short position

• Trailing Stop Alternative: After +40% gain, implement 10% trailing stop

Profit-Taking Framework (Optional):

• At +50% gain: Consider taking 25% off the table

• At +100% gain: Consider taking another 25% off

• Let remaining 50% run with trailing stop or until S signal

5. Second-Level Thinking: Risk & Context

A Howard Marks Caveat: The primary risk in any breakout strategy is the "false breakout." The entire process of base analysis, institutional tracking, and catalyst confirmation is designed to increase the probability that a breakout is real and sustainable. However, no setup is a certainty. Always position size for the possibility of being wrong.

Risk Considerations:

Stop-Loss Protocol: Our stop-loss for this strategy is set at a generous 20-25% below the initial entry. This is designed to withstand the volatility of a true breakout and retest. By combining this wide stop with our three-phase scaling strategy, the maximum risk on any single position is systematically limited to just 1-3% of the total portfolio.

Patience is Your Primary Edge: The biggest psychological challenge is watching an asset on your list do nothing for weeks or months. Acting too early, before the catalyst and the L signal, is the most common mistake.

Noise Adjustment: Different assets have different volatility profiles. For particularly "noisy" or choppy stocks, you may need to increase the Price Filter and Signal Filter settings in the Duo Base indicator to reduce false signals.

RISKON Threshold Adjustments:

• In strong trending markets, you may lower the entry threshold to 1.1

• In choppy markets, raise it to 1.5 for additional confirmation

• Always respect the >2.0 euphoria warning for profit-taking

Managed Options Strategy: The optional enhancement strategies are exclusively available to our private and family office clients and are executed by our affiliated fund managers. These strategies are designed to generate income during the base phase and amplify returns during breakouts.

6. Implementation Checklist

Before executing this strategy, ensure:

• You have access to the MXC indicator suite (Duo Lens Base, Price Pressure, Volume Pressure, RVFI, Adaptive RSI)

• You understand the RISKON scoring system and thresholds (0.9, 1.3, 2.0)

• You can identify leading indicator confluence patterns

• You have the patience to wait for both base completion AND catalyst

• You accept the wide stop-loss philosophy and three-phase scaling approach

• Your position sizing allows for 6-10 concentrated positions

• You have a systematic screening and watchlist management process

7. Final Words

The Investolator strategy represents the synthesis of patient capital accumulation and tactical execution. By combining Ted Warren's base principles, Stan Weinstein's phase analysis, and Capital Cycle theory, we've created a framework that adapts to any asset class while maintaining its core edge.

Remember: The market rewards patience and punishes impatience. Let the institutions do the heavy lifting during accumulation, let the leading indicators guide your preparation, and let the catalyst + L signal with RISKON >1.3 trigger your execution.

The best trades feel like inevitabilities, not gambles. This system is designed to find exactly those opportunities.

8. Appendix: Commodity-Specific Considerations

Commodities require special attention due to their unique characteristics and behavior patterns that differ from equities:

Base Duration Adjustments

Our system automatically detects commodity ETFs and adjusts expectations based on the specific commodity type:

• Agricultural Commodities: 3-6 month bases are typical due to faster cycles driven by seasonal factors and harvest patterns

• Energy Commodities: 6-12 month bases align with production cycles and capital expenditure timelines

• Precious Metals: 12-24 month bases reflect longer accumulation periods and monetary cycle influences

Volatility Adaptations

Commodity markets exhibit higher natural volatility than equities. The MXC Duo Lens Base indicator includes commodity-specific logic that expects approximately 30% wider trading ranges during base formation. This prevents premature signals during normal commodity volatility.

Capital Cycle Alignment

Commodities perfectly exemplify Capital Cycle theory:

• Accumulation Phase: Occurs during capital scarcity (mine closures, underinvestment, depleted reserves)

• Markup Phase: Triggered by supply/demand imbalance recognition

• Distribution Phase: Capital floods in (new mines, increased production capacity)

• Markdown Phase: Oversupply leads to price collapse and the cycle repeats

Commodity-Specific Catalysts

Unlike equities where earnings and product launches dominate, commodity catalysts include:

• Supply Shocks: Weather events, geopolitical tensions, production disruptions

• Demand Surges: Economic recovery, policy changes, technology shifts (e.g., EV adoption for lithium)

• Currency Moves: USD weakness typically bullish for commodities

• Seasonal Patterns: Particularly relevant for agricultural commodities (planting/harvest cycles)

Special Trading Considerations

When trading commodity ETFs, be aware of:

• Contango/Backwardation: Monitor futures curve structure as it impacts ETF performance

• Roll Yield: Factor in positive or negative roll yield when using futures-based ETFs

• Storage Costs: Particularly impacts precious metals and energy commodities

• Weather Patterns: Critical for agricultural positions - monitor long-range forecasts

• Geopolitical Risk: Commodities are more sensitive to supply chain disruptions

Commodity Position Management

Given the higher volatility and cyclical nature of commodities:

• Consider slightly smaller position sizes (10% vs 12.5% average)

• Be prepared for wider intraday swings during accumulation

• Monitor correlated commodities for sector-wide moves

• Pay special attention to the dollar index as a contra-indicator

• Use the full 25% stop-loss given higher volatility

• RISKON thresholds remain the same, but expect faster moves between levels

The Investolator framework's emphasis on patient base building and catalyst-driven entries is particularly powerful in commodities, where supply/demand imbalances can create explosive multi-year trends once recognized by the broader market.