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“When I see an anxious person, I ask myself what do they want? For if a person wasn’t wanting something outside of their own control, why would they be stricken by anxiety?”
Epictetus, Discourses, 2.13.1

Key Takeaways

  • The Hedgeye Nation Anxiety Meter™ hit its MAX yesterday. I didn’t enjoy seeing that. 
  • I don’t know about you, but when I see something that I’ve never seen before (and in 24 years of trading markets, I’ve seen a lot), my first move isn’t to get aggressive with incremental trades – it’s to stop, step back, wait and watch.
  • I’ve been calling this The Mother of All Bubbles for well over a year now. What I mean by that is there are MANY concentric bubbles inside The Mother of Them All.

The big picture

The Hedgeye Nation Anxiety Meter™ hit its MAX yesterday. I didn’t enjoy seeing that. I didn’t like losing some of my hard earned capital yesterday either. I lost -72 basis points in my Long/Short Book. That was my 2nd worse day since November (I didn’t have enough Longs during that NOV NASDAQ Squeeze Day to offset losses on the short side).

I didn’t have anxiety though. As I saw them jam into what may be the Final Bubble within The Mother of All Bubbles (0DTE Call Options), I just sat back and did nothing. I didn’t issue 1 Real-Time Alert. I sat there in silence and did nothing. I don’t think I’d have done well in the final days/weeks of the Tulip Bubble of 1674 either, so why make moves?

And why lose your patience on a day like that? “Getting worked up, excited, and nervously pacing – these intense, pained, and anxious moments show us at our most futile and servile… staring at the ticker… it’s as if we all belong to a religious cult that believes the gods of fate will only give us what we want if we sacrifice our peace of mind.” -The Daily Stoic (pg 43)

The Mother of All Bubbles Lives! - 02.02.2023 bulls and giant bear cartoon

Macro grind

Some people like the Anxiety Meter™, some don’t. Whatever the “feelings” you have about it might tell you a little bit about yourself, if you’re willing to go there. I recommend you try – it’s the only way you’ll #GetBetter at this, behaviorally.

Did losing money yesterday mean I got better? I don’t know. Will making money today mean I got worse? When you take a step back and consider your #behavioral reality at particular points in Cycle Time, you learn a lot.

Ironically enough, the February 3rd page in The Daily Stoic (each day has 1 page that helps center you, calm you, etc.) is titled “The Source of Your Anxiety.” I don’t feel things about markets, but I do have faith that there’s Signal in that.

A long time ago, Benoit Mandelbrot taught me about the BIG difference between Signal & Noise:

A) Signal is something like the TRENDING Cycle (because cycles TREND in the intermediate to long-term)
B) Noise is something like Brownian Motion that has nothing to do with anything other than market flow

I’m not going to waste our precious life or cycle time this morning recapping The #Quad4 Recession Cycle data that I did in yesterday’s Early Look. I will directly point out Noise, or the epic market flow, that gave me pause yesterday:

A) It was the LARGEST US Equity Options (Volume) Session of ALL-TIME
B) 40 MILLION Calls traded, perpetuating the biggest day ever
C) Ever is a long time

I don’t know about you, but when I see something that I’ve never seen before (and in 24 years of trading markets, I’ve seen a lot), my first move isn’t to get aggressive with incremental trades – it’s to stop, step back, wait and watch.

I’ve been calling this The Mother of All Bubbles for well over a year now. What I mean by that is there are MANY concentric bubbles inside The Mother of Them All.

On some days, these 0DTE (Zero Days to Expiration) Options represent > 50% of the tape. By any definition that is a mania and/or bubble… and there’s never been a bubble that doesn’t ultimately implode during a US Recession.

‘But, but, KM… this time is different and it can go on and on and…’

Yes, yesterday, it did. But it’s not a perpetuity. It’s going to end abruptly when the least amount of people are positioned for it. I’ve worked too hard, for too long, building my pile to NOT be one of those people.

The line items in this 0DTE Bubble are flat out frightening:

A) Over 428,000 Calls traded on the SPY FEB2 $417 ODTE line yesterday (SPY 416s and 417s were the Top 2 in Most Active)
B) Over 362,000 TSLA Calls traded on the TSLA FEB3 $200 ODTE line (that was the 3rd Most Active!)

Notwithstanding the fundamentally bearish view we’ve had on TSLA for over a year now, think about that. Who in their right mind would be doing that? Or is it someone with a sound mind who knows what the anxious crowd will do when THEY see that?

Since this has never happened before, it’s never been regulated…

And, as you all know, the US Government, SEC, etc. (think Bankman Fraud) doesn’t regulate frauds, bubbles, etc. until The People lose a LOT of money.

Since I’m probably the only one in America (at least on Twitter) who lost money yesterday, SEC don’t care, yet, bros.

What stops it? A: Gravity.  This is what I wrote in my Top 3 Things this morning for The Macro Show @HedgeyeTV:

“Interestingly, but not surprisingly, front-month Volatility for both NASDAQ and SPY were UP on the day – there’s only so much pressure they can put on the upside of SPY (and downside of the ball under water, Selling Vol), until this sucker (i.e. the ball, or realized Volatility) rips them to the upside – the catalyst for that is A) gravity and B) big components of gravity reporting reality (AAPL, GOOGL, etc.)”

Oh, and by the way, inside of the biggest US Options Bubble day ever, these were some of the big bets:

2.7 MILLION $TSLA calls (1.6M avg) 1.8M $AMZN calls (600k avg) 1.3M $AAPL calls (600k avg)

All 3 of those #BubbleCap bets are losing money on the open today. Remember, your “Stillness Is The Key” in a bear.

Our levels

Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets

UST 10yr Yield 3.36-3.59% (bearish)
UST 2yr Yield 4.05-4.28% (bullish)
High Yield (HYG) 74.99-77.32 (bearish)
SPX 3935-4203 (bearish)
NASDAQ 11,115-12,370 (bearish)
RUT 1829-2019 (bearish)
Tech (XLK) 129-144 (bearish)
Defense (ITA) 110-116 (bullish)`              
Shanghai Comp 3190-3303 (bullish)
VIX 17.85-21.26 (bullish)
USD 101.01-104.84 (bullish)
Oil (WTI) 75.13-81.12 (bearish)
Nat Gas 2.30-3.18 (bearish)
Gold 1895-1951 (bullish)
Copper 4.08-4.34 (bullish)
Silver 23.28-24.40 (bullish)
AAPL 137-151 (bearish)
AMZN 90-114 (bearish)
META 151-194 (bullish)
GOOGL 91-109 (bearish)
TSLA 121-198 (bearish)
Bitcoin 19,605-23,991 (bearish)

Best of luck out there today,
KM

Keith R. McCullough
Chief Executive Officer

The Mother of All Bubbles Lives! - FRIDAY