“What I believe is a process rather than a finality.”
- Emma Goldman
Emma did “anarchist political philosophy.” I just do the Signals & Quads. But I have an open mind and I like her quote.
Since I was writing and talking about a potential Quad Shift for most of last week, this morning’s week-over-week review of what moved in macro shouldn’t surprise anyone who is following the #process closely.
No I didn’t make a Quad Shift (from 2 to 1 for #Quad1 in Q2 of 2022) yet. That doesn’t mean I was right in not doing so. It doesn’t mean I am going to be wrong this week in buying the damn Oil, Energy, Financials, etc. dip last week either.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye! For those of you who are new to our #process, on the 1st day of the week we measure and map last week’s Global Macro market moves within the lens of my TRADE & TREND Signals.
As usual, we start with the Global Currency market (week-over-week):
- US Dollar Index ramped another +0.95% after breaking out to Bullish @Hedgeye TREND in the week prior
- EUR/USD got hammered on lock-down news, -1.3% on the week, confirming Bearish TRADE and TREND Signals
- Japanese Yen was -0.1% last week and remains Bearish TRADE and TREND vs. USD post 56 Trillion Yen in stimulus
- GBP/USD bounced +0.3% last week but remains Bearish TRADE and TREND as well post the BOE’s non-hike
- Brazil’s Real was down another -2.8% vs. USD and remains Bearish TRADE and TREND
- Norway’s Krone was down, hard, again -2.5% vs. USD last week and down -6.3% in the last month
Since Brazil’s economy remains in a China-like nasty #Quad3 Stagflation, its TRENDING 3-month Full Investing Cycle Return is down -3.6% whereas Norway’s FX looks like Oil (i.e. down last week and in the last month, not for the last 3 months).
That’s another way to ask yourself if this recent 1-3 week move in both Norway and Russia (stock market down -3.4% last week) is the beginning of the end for Commodity Inflation and #Quad2 OR if it’s simply a correction from Cycle Highs?
I don’t know what the answer is but I do have patience embedded in my risk management #process. Immediate-term TRADE break-downs can often be big time head-fakes, don’t forget.
So instead of just staring at Oil into another volatile options expiration (Friday was), let’s look at Commodities broadly:
- CRB Commodities Index corrected -0.9% last week but remains Bullish on both my TRADE and TREND durations
- Oil (WTI) corrected -4.7% last week to -6.8% in the last month but +21.7% in the last 3 months = Bullish TREND
- Copper corrected -1.1% last week to -5.6% in the last month but +8.7% in the last 3 months = Bullish TREND
- Coffee inflated +5.2% last week to +12.8% in the last month and +26.8% in the last 3 months = Bullish TREND
- Oats inflated +6.3% last week to +20.5% in the last month and +57.9% in the last 3 months = Bullish TREND
- Lumber inflated +28.9% last week to +4.3% in the last month and +58.7% in the last 3 months = Bullish TREND
No, those +58-59% TRENDING Full Cycle Asset Price #inflations aren’t typos. But what if I shorted Lumber when it “broke” its 50-day Moving Monkey last month? Again, #patience with the process, Jedis…
How about the Bond Market? What was it signaling last week?
A) UST 2yr Yield didn’t move last week so it remains Bullish TRADE and TREND as it only does in #Quad2
B) UST 10yr Yield sold off late in the week, closing down 2bps wk/wk but remains Bullish TRADE and TREND
Why? I never really know precisely “why”… but narrative types would say bond yields fell on the Austria news of covid lock-downs. Austria’s stock market was down -4.4% on the last week but is up almost +1% this morning and…
Germany’s stock market was actually up +0.4% on the week to +4.2% in the last month = Bullish TRADE and TREND.
Since most people we compete with do not have a Go Anywhere Macro Asset Allocation strategy and tend to focus on shorter-term US Equity moves, the Sector Style moves were very much #Quad1 last week:
A) Consumer Discretionary (XLY) was up another +3.7% on the week to +10.8% and +20.2% on a 1 and 3-month basis
B) Tech (XLK) was up another +2.4% last week to +7.9% and +10.4% on a 1 and 3-month return basis
Those Sector Styles (Top 2 in back-tested quarterly #Quad1 Return terms) stood in sharp contrast to the 2 Sectors that lose relative performance in a Quad Shift to #Quad1:
A) Energy Stocks (XLE) were down -5.0% to -5.8% in the last month but +19.8% in the last 3 months
B) Financials (XLF) were down -2.8% last week to -2.2% in the last month but +4.2% in the last 3 months
As most of you in the hedge fund business know, there has been carnage in the industry this year, mainly on these 1-month moves in big Sector and Factor exposures into monthly options expiration.
But that doesn’t mean that those of you who own your duration (i.e. you can hold a position for more than 4-6 weeks and not get stopped out) can’t capitalize on those by going big (on the long side) on these damn dips into month-end.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.47-1.68% (bullish)
UST 2yr Yield 0.42-0.58% (bullish)
SPX 4 (bullish)
NASDAQ 15,624-16,235 (bullish)
RUT 2 (bullish)
Tech (XLK) 163.65-172.45 (bullish)
Energy (XLE) 54.11-59.60 (bullish)
Financials (XLF) 38.75-40.61 (bullish)
DAX 15,990-16,317 (bullish)
VIX 15.17-18.98 (bearish)
USD 94.01-96.55 (bullish)
EUR/USD 1.121-1.151 (bearish)
USD/YEN 112.99-114.98 (bullish)
GBP/USD 1.332-1.358 (bearish)
Oil (WTI) 75.32-84.85 (bullish)
Copper 4.26-4.50 (bullish)
Bitcoin 55,814-70,610 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
