• [WEBCAST] Mega Market Trends: Risk Is Rising → Here’s Our Investing Playbook

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“Failure and catastrophe can provide a huge impetus and opportunity…”
Geoffrey West

The big picture

While I wouldn’t characterize the Quad 4 Hurricane you saw hammer markets in October a “catastrophe”, an investor in a “hedged” fund or some other asset management product built to “generate absolute returns in a down market” might beg to differ. 

According to the FT, “October was the worst month for hedge funds in 7 years.” Really? Wow there is huge opportunity for all of you in that. As West goes on to write in Scale (about opportunity born out of failures), “they stimulate innovation and new ideas.” (pg 63) 

Yesterday, there’s was a huge selling opportunity in everything we told you to sell at the end of September 2018 too. 

Macro grind

Ultimately, you’re either implementing our risk management process into what you do or you aren’t. 

If you aren’t yet using our process to augment yours, I totally get that – what we do has been both innovative and accurate on both the up and down moves of 2018… and it takes time for new subscribers to fully understand the what, when, and why of what we do.

Huge Selling Opportunity - 05.25.2017 things are good cartoon

Long-time subscribers know that I make plenty of mistakes. Generally speaking on the big stuff though, when the consensus crowd of the hedge fund community is making huge mistakes, I’m not aligned with their consensus positioning. 

There’s obviously a good chance that I’m wrong in my timing here and we get the “Santa Claus Rally.” If that happens, all of the losers in October become winners again in November and December. And I’ll be on my own island, losing money both personally and publicly. 

There’s also a good chance that I’m still right … 

Since you can see every single move that I make in Real-time Alerts (almost 4,300 signals since 2008), you know that I covered almost every single short position in October and hadn’t moved beyond 3-4 SHORTS in November until yesterday when I doubled that to 8. 

Rather than strive for literary #likes this morning, in the order that I went to 2 LONGS and 8 SHORTS in RTA here’s what I signaled yesterday and why: 

  1. Short Emerging Market Debt (EMB) – with the US Dollar Index signaling immediate-term #oversold I finally came back to the short side of what we’ve been bearish on since January of 2018 (Emerging Markets) on an EMB #overbought signal
  2. Short Mammoth Energy (TUSK) – when the broader US Equity Beta is signaling #overbought, I like to go back to favorite shorts that have been working; Al Richards and Jesse Root have done fantastic research in this under-followed name
  3. Short Euros (FXE) – again, in conjunction with the #oversold signal in the US Dollar, I was registering #overbought signals in plenty of FX but the currency with the most rancid economic data this week has been Europe’s
  4. Sell Kellogg (K) – after signaling buy on it after the stock blew up on earnings (looking for a name in one of my Top Bullish Sector Styles for Quad 4, Consumer Staples), I sold it on the bounce for a small loss – take small losses before they become big ones
  5. Short Momentum (MTUM) – since this is the #1 SHORT in Quad 4 (when coming from Quad 2 when it was my favorite long), patience and process had me waiting on this puppy for weeks; it finally signaled immediate-term #overbought
  6. Short Industrials (XLI) – not surprisingly, next to being long Momentum, being long a “globally synchronized recovery” in OCT was a horrendous position to have had on; Global PMIs are now #slowing in almost 80% of the countries we model 

So there’s both a FUNDAMENTAL research reason for every move I make inasmuch as there is a timing component to those decisions that’s based on my proprietary QUANTITATIVE signaling process. 

No, I’m not saying I’m God’s gift to market timing. I’m just the guy who is 100% transparent and accountable to every move I make. The what, when, and why of what I or anyone does should be based on a repeatable #process. 

If I sound like I’m confident in that process, I should be. Some of my more polite critics call me “creative” and “clever” and that’s fine. Call me whatever you want, but don’t call me the consensus that continues to fail at major market turns. 

Our levels

Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now: 

UST 10yr Yield 3.04-3.24% (bullish)
NASDAQ 7001-7618 (bearish)
Consumer Staples (XLP) 54.05-56.95 (bullish)
Industrials (XLI) 67.26-74.55 (bearish)
DAX 11112-11675 (bearish)
VIX 15.77-26.22 (bullish)
USD 95.50-97.15 (bullish)
Oil (WTI) 60.17-66.31 (bearish)
Gold 1215-1245 (bullish)
Copper 2.61-2.82 (bearish) 

Best of luck out there today,

KM 

Keith R. McCullough
Chief Executive Officer

Huge Selling Opportunity - 11.08.18 EL Chart