“Solitaire, neutron diffusion, and golf shots have one thing in common: variability.”
- Mark Broadie
A big Hedgeye hat tip to California’s Collin Morikawa on winning The Open this weekend. The man went 31 holes without a bogey. That’s low vol or not a lot of variability!
The aforementioned quote comes from Broadie’s book, Every Shot Counts, where he reminds us that “loss of information happens because many standard stats are averages, and the averaging process loses information.” (pg 78)
Just like playing golf at the highest level, it’s not the moving monkey average of things that mattered for Morikawa. It was the particular things. On Sunday, every time Jordan Spieth would get close to him, he’d make another birdie or par.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye! As a matter of #process, at the beginning of every week, I review what happened week-over-week in Global Macro, always contextualizing those moves within my TRADE and TREND Signals.
I always start with where most stock chart chasing moving monkeys aren’t - the Global Currency market:
- US Dollar Index had itself a #Quad4 Week (the only Quad where it goes up) +0.6% week-over-week
- EUR/USD corrected another -0.6% last week and remains Bearish TRADE but Bullish TREND @Hedgeye
- Japanese Yen was flat on the week vs. USD and remains Bearish on both my TRADE and TREND durations
- GBP/USD was -1.0% last week, breaking @Hedgeye TREND support after being Bearish TRADE prior
- Russian Ruble was +0.7% on the week vs. USD to +3.2% in the last 3 months and remains Bullish TRADE/TREND
- Norwegian Krone was -2.2% on the week vs. USD to -5.5% in the last 3 months and is Bearish TRADE, Bullish TREND
Maybe the Russians didn’t get the inside information on OPEC’s latest move? Both the Norwegians and the Oil market got themselves a heads up!
While the moving averages Old Wall still uses on USD (and everything else for that matter) are trivial, my intermediate-term TREND Signal level for the USD Index is not. Currently that critical TREND Risk Range™ Signal = 93.28.
So why not #Quad4? Well, it is #Quad4, in Japan!
Since a proper Hedgeye #Quad4 “call” is what plenty would and should panic about. You’d have to see the USD breakout > 93.28 and both Commodities and Oil break @Hedgeye TREND support too.
So what happened to Commodities, ex-Oil, last week? A: despite USD up, they went up:
- CRB Commodities Index inflated +0.4% last week towards Cycle Highs and +10.0% in the last 3 months
- Oil corrected -3.7% from its recent Cycle High to +14.3% in the last 3 months (still Bullish TRADE and TREND)
- Corn reflated +6.8% last week to +7.8% in the last 3 months = Bearish TRADE, Bullish TREND
- Coffee inflated +6.5% last week to +21.2% in the last 3 months
- Oats inflated +11.1% last week to +23.5% in the last 3 months
- Lean Hogs inflated +6.2% last week to +11.1% in the last 3 months
Oats? Yes, oats are every bit as relevant as Lumber prices (to people and animals that consume oats). But if you want to cherry pick Lumber, do that while I consume my inflating coffee and bacon prices.
Whether it is TRENDING (not transitory) inflation or Sticky Stagflation pending into the fall and Q4 of 2021 (i.e. Phase Transitioning from #Quad2 to #Quad3), one should ask themselves if we already had a mini-Quad4 market scare?
Again, it’s not just Commodities that would be crashing in #Quad4, it would SPY, NASDAQ, etc. Like the CRB Commodities Index (19 Commodities), they both just corrected from their ALL-TIME and Cycle highs too:
A) SPY corrected a whopping -1.0% last week to +2.4% in the last month and remains Bullish TRADE and TREND
B) NASDAQ corrected -1.9% last week to +2.8% in the last month and also remains Bullish TRADE and TREND
Now the Russell 2000 (IWM) and Small Cap Factor Exposures, which DO NOT enjoy #Quad2 to #Quad3 Phase Transitions, looks nothing like SPY or QQQ:
A) Russell 2000 was down -5.1% last week breaking @Hedgeye TREND support
B) Russell 2000 is down -6.5% and -4.4% in the last 1 and 3 months, respectively
The other big (macro) thing that looks like the Russell and Japanese Stocks (Nikkei is in #Quad4, down -4.5% in the last month and bearish on both my TRADE and TREND signals) is the UST 10yr Yield (< TREND = 1.29%), but:
A) UST 2yr Yield +1 basis point last week and +6 basis points in the last 3 months is Bullish TRADE and TREND… and
B) High Yield OAS Spread, which finally popped +13bps last week, is still down -11bps in the last 3 months
Another simple way to answer “Why Not #Quad4?” is just that. In a proper lose-your-freaking-mind-and-money #Quad4, 2yr UST Yields are breaking down as High Yield Spreads blow out!
None of these ROC (rate of change) or back-tested #Quad4 realities will make people “feel” any better about #Quad4 macro market days like we had on Friday.
But variability happens… and we want to play The Game based on our #process, not our feelings.
Immediate-term @Hedgeye Risk Range™ with TREND signal in brackets:
UST 10yr Yield 1.25-1.47% (neutral)
UST 2yr Yield 0.19-0.28% (bullish)
SPX 4 (bullish)
RUT 2150-2262 (bearish)
NASDAQ 14,369-14,815 (bullish)
Tech (XLK) 148.39-153.18 (bullish)
Energy (XLE) 48.01-54.53 (bullish)
REITS (XLRE) 44.86-46.75 (bullish)
Shanghai Comp 3 (bearish)
Nikkei 27,513-28,669 (bearish)
DAX 15,203-15,915 (bullish)
VIX 14.70-19.98 (bearish)
USD 91.43-92.99 (bearish)
EUR/USD 1.176-1.199 (bullish)
USD/YEN 109.35-111.06 (bullish)
GBP/USD 1.372-1.392 (bearish)
Oil (WTI) 69.79-75.71 (bullish)
Nat Gas 3.53-3.78 (bullish)
Gold 1 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
