“Until one is committed, there is hesitancy, the chance to drawback, always ineffectiveness.”
- William Murray
Have you been committed to buying the damn dips during this uniquely American #Quad3 (slowing) to #Quad2 (re-acceleration) Phase Transition? How big did you go? Or did you stay with deflation, duration, and defensive positioning?
The aforementioned quote is a great coaching one from a chapter in Coach The Person, Not The Problem that Marcia Reynolds titled “New & Next.” How committed are you to making new Asset Allocation moves and positioning for the next Quad?
“A common regret of coaches occurs when they realize they missed an opportunity to commit to an action… even if that action is to take the time to reflect” (pg 137). Been there done that, many times, in this game – but not this time.
Back to the Global Macro Grind…
One of the toughest competing macro voices in The Game today is Mike Wilson at Morgan Stanley. Why is he tough? The man doesn’t send you some equally weighted or 60/40 Old Wall pie charts. He takes a real view.
Like playing The Game at the highest level of any profession, taking a view can be dangerous (that’s why most people we compete with don’t); especially if you have to play against guys like me with the opposing view.
While I was disappointed with Mike blaming being wrong for the last month on “Retail buying the dip”, it is what it is…
I’m betting he’ll take that comment back as he takes more time and space to reflect on what both US stock and bond markets have been pricing in since #Quad3 in Q3 ended in August-September.
And if he doesn’t, it really doesn’t matter to me. I have to play my game and he has to play his. When I start getting things wrong it’s usually because I need to change my positioning to the correct one. If I stay wrong, I lose both money and clients.
I don’t know if you’d all consider yourselves “retail” (doubt it because you aren’t), but clearly you bought the damn dip in September when the VIX was at 28 and Mike was calling for his 10-12% correction becoming a 20% one.
The Score: US stocks are back to within 1% of SPY’s all-time closing high.
And, instead of what Mike calls a “rolling correction”, what we really have are textbook #Quad2 breakouts in Bond Yields, Commodities, Sector Styles, and Factor Exposures.
The only rolling corrections I see are in being long Treasuries, Gold, and “defensive” Equity Sectors and/or Factor Exposures:
- Consumer Staples (XLP) were down another -0.6% in an up tape yesterday and already -1.9% relative for OCT
- Utilities (XLU) were down another -1.0% yesterday and down -2.3% (relative to SPY) for OCT
- Healthcare (XLV) was down another -0.7% yesterday and is down -4.3% relative for OCT
For those of you who have friends who don’t count the score on either an alpha generating or relative basis, now you can send them the numbers. They aren’t mine. They are those of The Cycle. Here’s what’s working:
- Energy (XLE) was +0.1% yesterday and up +6.0% relative to SPY in OCT
- Financials (XLF) were +0.1% yesterday and +1.2% relative to SPY in OCT
- Consumer Discretionary (XLY) was up +1.2% yesterday and +2.5% relative to SPY in OCT
Not-ironically, those are the Top 3 back-tested Sector Styles to be long of during a #Quad2 Phase Transition (they’re also currently ranked #1-3 in terms of my Risk Range™ Signal Strength with Tech (XLK) ranked #4).
Oh, but, but, that’s only 19 days into OCT. Yep. Use 1-month price-momentum instead of 19 days and the alpha generation is even stronger on both an absolute and relative basis.
Plus we made this Asset Allocation and Sector Style pivot on September 23rd, so that’s the only score that matters to me.
More importantly, in terms of what happens next… what’s the big reveal and/or catalyst that is going to cause The Machine to reverse these spanking brand new 1-month price momentums? Please don’t tell me it’s “valuation.” That’s not a catalyst.
How about what the market (i.e. The Machine) sees as the next catalyst? What could that be? Could it be the inverse of what #slowed the US economy to +5.33% US GDP growth (from +12.23% year-over-year) in Q3?
A) The ROC (rate of change) of US covid case counts just #slowed another -10% last week
B) That was after #slowing -13% week-over-week in the week prior … and
C) That takes the ROC of US covid cases to a collapse of -48% in the last month
Aha! This all happened in the last month, eh? You know what else happened in the last month that we’ve been calling for this? The non-commercial (CFTC data) net SHORT position in SPY went from -22,822 contracts to +94,699 net LONG.
That’s not “retail buying.” That’s the buy-side of Institutional Investors buying-the-damn dips so that they don’t miss either the re-acceleration of the US economy or going on the 55th all-time closing stock market high of 2021.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.50-1.64% (bullish)
UST 2yr Yield 0.30-0.45% (bullish)
SPX 4311-4508 (bullish)
RUT 2 (bullish)
NASDAQ 14,309-15,144 (bullish)
Utilities (XLU) 63.33-66.48 (bearish)
Energy (XLE) 54.29-58.93 (bullish)
Financials (XLF) 38.14-40.70 (bullish)
VIX 15.14-21.63 (bearish)
USD 92.99-94.40 (bearish)
Oil (WTI) 77.25-83.55 (neutral)
Nat Gas 4.96-6.02 (bullish)
Gold 1 (bearish)
Copper 4.32-4.88 (bullish)
Bitcoin 50,998-62,693 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
