A Convincing #Quad2

“Exhausting someone in argument is not the same as convincing them.”
- Tim Kreider

That’s another great quote from Chapter 5 of Think Again, by Adam Grant. He called it “Dancing With Foes” which is about how to win debates and influence people.

Going on 14 years of building an Independent Research and content platform that is designed to both disrupt and displace ye Olde Wall, the best way to win isn’t with intellectual arguments about the way market returns should be…

It’s all about showing a repeatable #process that does what both the data and markets are actually doing. This isn’t a social science experiment. This is Wall Street. Those with the highest alpha scores win the only debates that matter.

Back to the Global Macro Grind…

Welcome to another Macro Monday @Hedgeye where we continue to measure and map all of Global Macro within the lens of both our TRADE/TREND/TAIL Signals & The Quads!

If you still need convincing on a #Quad2 in Q4 Phase Transition, this is going to be the easiest weekly review we’ve had so far since making the Quad Shift on September 23^rd. Let’s start with the Global Currency Market Signals:

1. USD Index failed @Hedgeye TREND support (again), down -0.15% on the week
2. EUR/USD was +0.3% last week and remains benign, range-bound, etc. (those are Neutral TRENDs)
3. Yen continued to implode vs. USD, down another -1.8% last week and -4.3% in the last month alone
4. GBP/USD continued to breakout, up another +1.0% last week to Bullish @Hedgeye TREND
5. Canadian Dollar continued to breakout vs. USD, up another +0.9% and also Bullish TREND
6. Russian Ruble was up another +1.1% vs. USD last week and remains Bullish TRADE and TREND as well

So we still have the same complexity being simplified in currency markets with some obvious Oily/Commodity Country Currency pairs (Canada, Norway, Russia, etc.) breaking out vs. USD and other countries with ROC (rate of change breakouts) into #Quad2 like the UK and Indonesia (Rupiah +1.1% last week) building relative strength vs. USD.

Oily? Yep. If you have Old Wall “chart” friends who sold either Oil or Copper when their Moving Monkeys “broke” back in August, send them to this monkey named Mucker – he does The Quads.

Here’s your weekly and TRENDING (not transitory) Commodities Inflation:

1. CRB Commodities Index inflated another +1.6% last week, taking its Full Cycle 3-month Investing Return to +12.7%
2. Oil (WTI) inflated another +3.7% last week, taking its Full Cycle 3-month Investing Return to +17.8%
3. Copper inflated an impressive +10.6% last week, taking its Full Cycle 3-month Investing Return to +9.5%
4. Aluminum inflated another +6.7% last week, taking its Full Cycle 3-month Investing Return to +25.1%
5. Lumber inflated another +5.4% last week, taking its Full Cycle 3-month Investing Return to +33.9%

Yes, those Full Investing Cycle returns are pounding any “mid cycle” narrative and/or the results associated with being long “defensives” with the SP500 ramping to within 1.4% of her all-time closing highs and Staples and Utes lagging, big time.

While the Full Investing Cycle Returns for Commodities include Cycle Time when in either #Quad3 (in Q3) or #Quad2 (in Q4), we should be looking at 1-month Returns when scoring the Phase Transition that is only 1-month old into #Quad2:

1. Financials (XLF) were up another +1.3% last week, taking 1-month price momentum to +4.4%
2. Consumer Discretionary (XLY) was up +3.5% last week, taking 1-month price momentum to +2.8%
3. Energy Stocks (XLE) were up another +1.3% last week, taking 1-month price momentum to +14.1%
4. HIGH LEVERAGE (Factor Exposure) stocks have 1-month price momentum of +4.1%
5. HIGH BETA stocks have 1-month price momentum of +4.2%
6. HIGH EPS GROWTH stocks have 1-month price momentum of +4.1%

When the US economy is #slowing like it did during the Delta Variant and #Quad3 in Q3, being long LEVERAGE, HIGH BETA, and Consumer Discretionary does not work. All 6 of those Sector Styles and Factor Exposures work in #Quad2.

The only Quad where short-term interest rates breakout is in #Quad2 too. That’s why:

A) UST 2yr Yield shot +8 basis points higher last week and is up another +4bps this morning to 0.43%... and
B) Gold is down another -0.2% this morning after being down -1.5% in the last month during the Quad Shift

All the while our Signal & Quad Asset Allocation #process continues to dig up non-consensus Asset Allocations like:

1. Long India (INDA) which is still our #1 ranked (Signal Strength) EM Long at +15.5% in 3 months
2. Long Indonesia (IDX) which is in our Top 6 EM Longs since SEP 23rd and +8.6% in the last month
3. Long Israel (EIS) which is also in out Top 6 since SEP 23rd and +2.0% and +11.5% in the last 1 and 3 months

Don’t worry, convincing our Old Wall competition isn’t going to happen any time soon. Exhausting them with both the data and the score of The Game will.

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

UST 10yr Yield 1.48-1.63% (bullish)
UST 2yr Yield 0.29-0.45% (bullish)
SPX 4 (bullish)
RUT 2174-2285 (bullish)
NASDAQ 14,305-15,007 (bullish)
Utilities (XLU) 63.25-66.30 (bearish)
Energy (XLE) 53.78-58.21 (bullish)
Financials (XLF) 37.99-40.74 (bullish)
VIX 15.63-22.25 (bearish)
USD 92.93-94.53 (bearish)
EUR/USD 1.153-1.166 (neutral)
USD/YEN 111.44-114.90 (bullish)
GBP/USD 1.354-1.378 (bullish)
CAD/USD 0.793-0.813 (bullish)
Oil (WTI) 77.25-83.55 (bullish)
Gold 1 (bearish)
Copper 4.21-4.79 (bullish)
Bitcoin 49,466-62,605 (bullish) 

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer