“In fractal analysis, a price series is like a long, folding car antenna.”
- Benoit Mandelbrot
Since we seem to be getting more and more copycats of the Hedgeye #Process, instead of acknowledging that they learned it from me, here’s some of the source code they should be citing as their own:
“The genius of fractal analysis is that the same risk factors, the same formulae apply to a day as to a year, an hour as to a month. Only the magnitude differs, not the proportions.” -The (mis)Behavior of Markets, pg 239
So, when the next person on Twitter says they do “multi-factor, multi-duration analysis of fractal #RiskRanges”, you’ll know where they got that (from me). But do they really know how price variations scale with time?
Back to the Global Macro Grind…
Most importantly, do they know when something is breaking out or breaking down on my multi-duration, multi-factor TRADE, TREND, and TAIL Signals? Do they really know where my #RiskRange Signals are resetting post refreshes?
I guess we’ll have to see, eh.
As The Brot taught me a long time ago, in markets at least, time is flexible. Not only do you need to use the right fractal tools to see what The Machine sees in real clock-time, you need a LOT of reps.
Reps or, as John Boyd called them, OODA Loops, are pretty much the only things that make me better or worse at what I do. With every OODA (observe, orient, decide, and act) opportunity I learn something.
Most of the time I’m reinforcing what I’ve already learned. Some of the time I learn something new.
Executing my reps with OPM (other people’s money) as a hedge fund manager and now with MFO (Mucker Family Office money) has been a unique experience as the last 13.5 years have been done out loud for all to see.
That’s one way to see, eh? Show us your #timestamps!
The most recent of my learnings that have been “new” are largely centered in applying my Fractal TRADE/TREND/TAIL #RiskRange Signaling process to Crypto Commodities.
If my calling Crypto Assets “Commodities” triggers you, then just call them assets – that’s cool with me.
The reason why I call them Commodities is that the big ones that I measure and map, daily, in the Hedgeye Crypto Quant Tracker have similar REALIZED (historical) and TRENDING Volatility characteristics as Commodities.
What did I learn that was “new”?
A) That both my #RiskRange Signal and @Hedgeye TREND duration signals worked, both ways, since SEP/OCT
B) Vol of Vol breakouts for Bitcoin moved to the 80th then 100th percentile of Volatility readings FAST
C) The speed and stickiness of the Phase Transition in Volatility made it TRENDING
As opposed to Episodic-and-non-TRENDING moves in my Vol of Vol Signals (my cats will have to get quite “creative” to copy how I define and write about those) like we’ve recently seen in #RussVol (Russell 2000 Volatility)…
This recent Vol Spike in Bitcoin stuck. For those of you who haven’t used the outputs of my 3-factor model (PRICE/VOLUME/VOLATILITY) before:
A) 30-day Realized Volatility for Bitcoin is currently trading at 102…
B) 102 = 88th percentile of 3-month readings
C) 102 = 97th percentile of 1-month readings
Can you imagine the VIX was at 102 this morning? Would you be buying AMC or stah-ks!? Uh, maybe. And if you did as realized volatility went from VIX 16 to 30, you’d lose lots of money. Then from 30-100, you’d lose all your money.
That’s what the guys like The Maestro (Mike Saylor) didn’t get about the math and my models. When you “invite” all of the “billionaires” and/or Institutional money to the #Bitcoin game, you invite their risk management rules.
Most hedge funds have liquidity and leverage rules that are married to drawdown rules, don’t forget.
That simply means that since the mid-May Vol Spike in Bitcoin stuck, the tapping of the shoulders (i.e. “take down your leverage to these bloody Bitcoin trades”) happened … and less volume bought the bounce to lower-highs.
This morning is a textbook breakdown in Bitcoin to lower-lows within a Bearish @Hedgeye TREND with volatility that may or may not go away. I’ll let the math in my models and process let me know when/if that happens.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.54-1.68% (bullish)
SPX 4174-4248 (bullish)
RUT 2 (bullish)
NASDAQ 13,565-13,991 (bullish)
Energy (XLE) 53.48-57.20 (bullish)
Financials (XLF) 37.31-38.80 (bullish)
VIX 15.07-18.95 (bearish)
USD 89.45-90.39 (bearish)
Oil (WTI) 65.88-70.44 (bullish)
Nat Gas 2.96-3.18 (bullish)
Gold 1 (bearish)
Copper 4.41-4.76 (bullish)
Silver 27.41-28.45 (bullish)
Bitcoin 32,509-40,210 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
