“Energy is the only universal currency: one of its many forms must be transformed to get anything done.”
- Vaclav Smil
Oh can a quote like that (especially the 1st part) trigger some people in this day and age, eh? But if you read the entire quote (and the entire book it came from, Energy & Civilization – A History), at a bare minimum, you’ll become more Macro Aware.
‘But, but, KM… if it’s #Quad4 and not #Quad3, I can’t be long Energy.’
Isn’t that the obvious truth after 2-clean cut #Quad4 market days that may or may not have been the end of it. As Smil, or anyone who uses the laws of thermodynamics to risk manage their money knows, entropy can go all non-linear on us, fast!
Back to the Global Macro Grind…
Open question: now that the SP500 is in the midst of an epic -2.9% “drawdown” from her all-time closing highs (which was only on last Monday btw), were the last 2 trading days the beginning of #Quad4?
A: I don’t know. Neither does the market.
I never know anything for sure. But it is nice to know that lots of people think they know, even if their macro and market timing track record suggests they don’t. lol
And I get that some of you struggle when I don’t make it a clean-cut #Quad4 “call.” I do too. I just got my teeth kicked in being long Energy (XLE) and Tech (XLK) for the last 2-days of this. The other Sector in my Top 3 (REITS) was more like a love tap.
All that said, even though I could have risk managed it better (knowing about OPEC’s decision ahead of the “news” like some people did certainly would have helped) I did proactively prepare anyone who is paying attention for this:
A) The Title of our Q3 Macro Themes deck (June 22nd) was “Prepping For The Pivot”
B) I made the re-ordering US Equity Sector Pivots to Tech, Energy, and REITS on that same day
C) I made the pre-emptive #Quad3 pivot out of Small Cap Factor Exposure (IWM) at SPY’s all-time high
And, more importantly, for the 1st time in Hedgeye history, I ended that Q3 Macro Themes presentation with a slide I titled “10 Key #Quad3 (or #Quad4) @Hedgeye Signal Levels” that I will refresh for new PRICE/VOLUME/VOLATILITY data right here:
- UST 10yr Yield TREND resistance = 1.28%
- USD Index TREND resistance = 93.29
- CRB Commodities Index TREND support = 192
- Oil (WTI) TREND support = 61.74
- Copper TREND support = 3.76
- Corn TREND support = 5.19
- Gold TREND support = 1797
- SP500 TREND support = 4101
- NASDAQ TREND support = 13,496
- DAX TREND support = 14,995
If I gave you another 17 signals (which include big macro things like HY OAS Spread, KOSPI, etc.) maybe you could try to back into The Singularity of my signaling process and call it your own. haha
But, since you can’t “see” all of it ticking in real-time, across all 3 of my core risk management durations (TRADE, TREND, and TAIL), you’ll have to take my self-centered word for it. I see what I see. And I execute on that incrementally.
What you should immediately see on your own is:
A) It’s definitely not #Quad2 (globally or locally) anymore (prepped for the pivot there and pivot made)…
B) It’s not clear if it’s #Quad3 or #Quad4 pending on a TRENDING basis (i.e. not a 2-day duration)… but
C) The benefit of doubt should be going to #Quad4 in Japan and #Quad3 in the USA, for now…
Why on the last part? Well, in addition to the Russell 2000 (which is also in my Top 27 Signals) breaking its @Hedgeye TRADE and TREND support levels on a #RussVol (Russell Volatility) breakout into the (bad word) Volatility Bucket > 28 yesterday…
That’s #Quad3 inasmuch as these things still are:
A) USD bullish TRADE, but still bearish TREND
B) Commodities (CRB Index) still bullish TRADE and TREND
C) Oil teetering on a bearish TRADE breakdown, but still clearly bullish TREND
D) Copper and Corn both higher this morning after holding bullish TREND (both are bearish TRADE)
E) SPY and NASDAQ are still bullish on both TRADE and TREND durations
Now, if the USD was to breakout from here and the UST 2yr Yield (also in Top 27) were to break-down back to Bearish @Hedgeye TREND, we’d have clearer “bond market” signals that it’s #Quad4 and not #Quad3.
Then, of course, there’s still the high probability of #Quad2 economic data (specifically #Quad2 Earnings Season and pending US Employment reports) that can easily steal Macro Tourist attention away from being epidemiologists.
So, yeah, there’s a lot to think about. There always is. But I don’t get caught up thinking about “variant” and “valuation” centric theories. I go with what is the highest probability according to the market signals themselves.
Immediate-term @Hedgeye Risk Range™ with TREND signal in brackets:
UST 10yr Yield 1.17-1.47% (bearish)
UST 2yr Yield 0.19-0.28% (bullish)
SPX 4 (bullish)
RUT 2110-2219 (bearish)
NASDAQ 14,185-14,871 (bullish)
Tech (XLK) 147.17-153.14 (bullish)
Energy (XLE) 46.02-54.57 (bullish)
REITS (XLRE) 44.95-46.68 (bullish)
Shanghai Comp 3 (bearish)
Nikkei 27,208-28,681 (bearish)
DAX 15,108-16,006 (bullish)
VIX 13.93-23.87 (bearish)
USD 91.48-93.10 (bearish)
Oil (WTI) 66.05-76.33 (bullish)
Nat Gas 3.55-3.81 (bullish)
Gold 1 (bullish)
Copper 4.19-4.39 (bullish)
Bitcoin 29,307-34,701 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
