“All of these triggers work by driving attention into the present moment.”
- Steven Kotler
Think I’d trigger some people by making a “Quad4 Correction Call” this morning? I’m thinking yes. It could happen btw. If you were chasing Bitcoin’s chart on green yesterday (not what we do), it is happening to you today!
The aforementioned “triggers” that Kotler is referring to are called Flow Triggers. Psychologist Csikszentmihalyi eventually termed these “proximal conditions for flow”… “since then, we’ve identified 19 more flow triggers… there are probably more.” (pg 233)
As I read through that chapter in The Art of The Impossible – A Peak Performance Primer, it kept triggering my thought process. I’ve identified at least 28 (market) Signals that front-run economic Quad Shifts and market Phase Transitions.
Back to the Global Macro Grind…
If I was only to use a 3-factor model and I used USD, Gold, and Bitcoin, this morning would absolutely be a #Quad4 macro market morning. Why? Looking at historical back-test data (quarterly returns by Quad):
- USD’s (US Dollar Index) only meaningful positive absolute return comes in #Quad4
- Bitcoin’s only meaningful TRENDING draw-downs happen in #Quad4
- Gold loves it when the economic Quad shifts from #Quad2 (which it hates) to #Quad4
Gold just registered an immediate-term TRADE duration correlation of +0.85 vs. USD. TRADEs are not TRENDs (they can be big Counter @Hedgeye TREND head-fakes like US and UK 10yr Yields were at their NOV lows), but they are “proximal conditions.”
Of the 28 fractally interconnected market signals, broad Bond Yield, Commodity, and Equity Signals obviously matter. Weighting the 28 factors for marginal impact on my Quad Models, Bond Yield Signals are some of the strongest.
Bond Yields, across the curve, continue to correlate with inflating Commodities and our #Quad2 in Q4 Real GDP Growth Nowcasts, for example. Looking at some big ones that matter right now:
A) UST 2yr Yield = +0.52% continues to signal Bullish TRADE and TREND @Hedgeye
B) UST 10yr Yield = 1.60% continues to signal Bullish TRADE and TREND @Hedgeye
C) UK 10yr Yield = 0.97% continues to signal Bullish TRADE and TREND @Hedgeye
D) DET 10yr Yield = -0.23% is signaling Bearish TRADE but Bullish TREND @Hedgeye
For those of you who don’t wakeup to measuring and mapping ALL of the Global Currencies, Commodities, Government Yields, etc., DET isn’t for the Detroit Lions. It’s short-form for Germany Bund Yield.
While I am much more focused on the WHEN (signals break out or beak down) vs. the WHY, most people ask me why, why, why… so I have to try to answer with some whys because that’s what people pay me for!
Why is the German 10yr Yield relatively weaker than the US and UK 10yr Yields?
A) EUR/USD broke bad from Neutral to Bearish @Hedgeye TREND last week
B) European Covid Case Counts just #accelerated +10% last week to +64% in the last month
But why? Again, there’s no simple and singular answer (hence why I use The Quads to simplify the complex), but one of the many contributing reasons is that the ECB (European Central Bank) is much more dovish than the US Federal Reserve and BOE are.
Yesterday, the BOE’s (Bank of England) Bailey tried to get some credibility back on a pending rate hike, so that makes GBP/USD +0.3% here this morning one of the few major FX pairs that’s up vs. USD. Swiss Francs and Euros continue to break down.
And yes, major FX pairs are in my Top 28 Signals, so yes, I am paying attention to those present moment triggers as well.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.45-1.67% (bullish)
UST 2yr Yield 0.38-0.57% (bullish)
SPX 4 (bullish)
NASDAQ 15,610-16,095 (bullish)
RUT 2 (bullish)
Tech (XLK) 162.91-170.05 (bullish)
Energy (XLE) 56.70-59.39 (bullish)
Financials (XLF) 39.72-40.76 (bullish)
DAX 15,901-16,255 (bullish)
VIX 14.41-19.01 (bearish)
USD 93.48-95.67 (bullish)
EUR/USD 1.135-1.157 (bearish)
GBP/USD 1.330-1.363 (bearish)
CAD/USD 0.793-0.809 (neutral)
USD/CHF 0.908-0.929 (neutral)
Oil (WTI) 78.77-84.41 (bullish)
Gold 1 (bullish)
Bitcoin 58,301-69,173 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
