“Control your thoughts, and you control your emotions.”
- Tim Grover
At this stage of my career, I think I’ve earned every bit of criticism I get. Playing The Game out loud and showing every single move you make isn’t for everyone. If your hockey-head is thick enough, you can block other people’s emotions like pucks!
Back to the Global Macro Grind…
It’s taken me a long time to learn how to execute dispassionately in market moments that matter. Why? By nature, I’m a passionate guy! Yep, that’s why every once in a while I’ll punch someone in the face on Twitter (they earn that too).
Don’t focus on my moments of emotional style – focus on my results.
My results, of course, have a lot less to do with me than they do both my teammates and our #process. I’ve been called a lot of things in this profession, but one of them isn’t a selfish teammate who can’t admit being wrong.
How about you? How are you doing? What decisions did you make on Monday at 28 VIX?
The best part about The Game is that there’s always a score. At VIX 18 yesterday, people who called for a “20% correction” and/or went to cash on Monday were “feeling” something different, I guess. I didn’t feel anything at all. I just hit a bunch of sell buttons.
Just like in the other game I loved to play with passion and pride, the only thing that matters now is my next shift. So, let’s play this out on our Long USA vs. Short China positioning first:
A) If you’re concerned about China (my Signaling process still is), then just short China (FXI, EWH, CHIQ are our Top 3 Shorts)
B) If you bought the damn dip in SPY, QQQ, etc. on Monday, you were selling-SOME into yesterday’s ramp
While the risk management concept of selling-SOME isn’t a foreign one to pros who play The Long/Short Game at the highest level, I have come to appreciate that coaching SOME people through that helps them.
The Game isn’t an all-in one. It’s an incremental one. I’ve always touched (traded) every position in my portfolio incrementally.
What does SOME mean? At particular points in what Jim Gatheral called Clock Time (or Trading Time), buying or selling SOME can mean a little or a lot. A little is 25-50 basis points of my hard earned capital. A lot would be 100-300 basis points of my capital.
Examples:
A) I re-shorted 100 basis points, across the board, in my China Shorts (FXI, EWH, CHIQ) yesterday… and
B) I sold 150 basis points of my QQQ, SPY, etc. positions
Why?
A) Because I went to my MIN (minimum) on those core shorts on Monday (covering aggressively on red)… and
B) Because I went to my MAX on my core Asset Allocations on Monday
What is my MIN and MAX? What’s yours? That’s the easiest question for me to answer and it should be yours too. Your MIN/MAX should be capital allocation rules that are embedded in your risk management process.
Your MIN/MAX should be Volatility Adjusted by Asset Class. In Equities, my MAX Short position = 3%. My MAX Long Position = 6%. My MIN Short position = 0.50%. My MIN Long position = 0.50%
Since I trade my portfolios aggressively (I’ve had 102 trades in The MFO this week – my weekly average is closer to 60, or 10-12/day, but we had a hell of a buy/cover opportunity on Monday), my strategy used to pay The Street (brokers) a LOT of money.
But now, I pay them virtually nothing. With 0% commissions, risk managing my book incrementally has no transactions costs.
Yeah, I know. I admitted it. That Mucker (that’s with an M) is a dirty little scalping trader. That should make my best critics feel intellectually validated, eh? My teammates and I aren’t really good at nailing The Cycle, because I am a trader!
Whatever they want to call me, in case you couldn’t tell, I do not care.
What I care about is being a Player Coach in a game that I love. Like all players and coaches, I yearn to learn from my mistakes. That’s easier to do, faster, when I get to play The Game, daily, alongside all of you.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.30-1.44% (bullish)
UST 2yr Yield 0.22-0.27% (bullish)
SPX 4 (bullish)
RUT 2186-2274 (bullish)
NASDAQ 14,691-15,395 (bullish)
Tech (XLK) 151.85-159.81 (bullish)
Utilities (XLU) 64.21-67.10 (bearish)
Energy (XLE) 46.40-51.65 (bullish)
Shanghai Comp 3 (bearish)
VIX 15.46-24.49 (bearish)
USD 92.26-93.39 (bearish)
Oil (WTI) 70.01-73.91 (bullish)
Nat Gas 4.68-5.61 (bullish)
Gold 1 (bearish)
Copper 4.06-4.46 (neutral)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
