“In a perfect world, defendants would face justice; in our world, they face a noisy system.”
- Daniel Kahneman
How are you “feeling” about the US stock market this morning? How were you feeling into yesterday’s close? I know. We all have feelings about “why” markets do what they do. That’s why I built my risk management #process to fade mine.
The aforementioned quote is a good one from a chapter in Noise that Kahneman titled “Your Mind Is A Measuring Instrument.” He was using the example of American judges and how their opinions vary despite having access to the same data/facts:
“Level #Noise is variability in the average level of judgements by different judges”… whereas “Pattern #Noise is variability in the judges’ responses to particular cases” (pg 78). Just like in markets, it’s how you judge the particular moments that matter.
Back to the Global Macro Grind…
So let’s say you’re a “judge” of buying and selling opportunities who uses an Ole School pre-internet slide ruler and a 50-day Moving Monkey average to determine “risk” on or off… and you sold SPY the last time that it “broke” its 50-day on October 13th.
How’d that short-term judgment “call” play out for you?
My #VASP (Volatility Adjusted Signaling Process) said that was the signal for a melt-up to pending all-time SPY highs. Post OCT 13th, SPY had 8 days of that in a row. That hadn’t happened since 1997.
Notwithstanding the bigger picture about “what” happened after that in 1997 (the internet and how our Long Ethereum position is trading today relative to those 150 million users of the internet back then), what do the monkeys really know about The Cycle?
50 days is obviously short-term. What if you replayed The Cycle from an intermediate-term TREND perspective and reviewed what happened after SPY had its last worst back-to-back down days (vs. the last 2 days)?
A: that was all the way back in October 2020, right before The Cycle was about to liftoff into the most epic #Quad2 of 2s!
“So”… as they like to say on Old Wall TV, what are you going to do if I’m right and we’re going from #Quad2 to #Quad1 this time? If I’m wrong, it’ll be a narrow #Quad4, and you’ll get paid being long SPY anyway btw.
“Narrow #Quad4”? Yep. That’s actually what’s on the Hedgeye Nowcast page for Q1 of 2022. It was also what was on the page (as in our Quad Map, the one we invented, back-tested, etc.) initially for both Q3 and Q4 of 2021, don’t forget.
And, yes, my VASP (signals) front-ran those Quad Shifts as well as any front-running I’ve done as a greyer, fatter, and older man.
Before you give up on me as The Judge of The Process (giving myself new fancy titles because I’m so big time, eh) that we built here, allow me to entertain you with some non-Omi-crap-clickbait ROC numbers that landed in our weekly & monthly Quads yesterday:
A) WEEKLY: US Mortgage Applications were up another +5% week-over-week to a fresh 9 month high
B) MONTHLY: ISM #accelerated to a 6-month high of 61.1 for the month of November
C) MONTHLY: ISM Prices Paid #slowed for the 1st time from their inflation Cycle peak in October
Embarrassingly, if someone told you that the Weekly & Monthly Signals & Quads weren’t invented @Hedgeye, they’re lying to you.
On our “Buy #Quad1” Flash Call @HedgeyeTV at 10:15 AM ET (ping for access) I’ll review how both the WEEKLY and MONTHLY Quads are now dynamically Phase Transitioning intra-quarter from #Quad2 to #Quad1.
Yesterday’s ISM report (i.e. the 15th ranked feature in our GIP or Quad Model – other people give it other names, haha) was a textbook #Quad1 Goldilocks report that the market initially went bananas for (SPY was up +1.5% in a straight AM line)…
Then the bears ate the monkey’s bananas, after getting lucky with a “Omi-Is-in-Cali” intraday covid headline.
While this has been a very tough year for US stock market bears to remember all of their variant bearish narratives, I think you can remember what you did on those back-to-back SPY down days of October 2020 when the VIX wasn’t at 31. It was at 41!
You faded your feelings and the #noise of other market judges… and you bought the damn dip.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.38-1.72% (bullish)
UST 2yr Yield 0.45-0.67% (bullish)
SPX 4 (bullish)
NASDAQ 15,188-16,228 (bullish)
RUT 2134-2428 (bullish)
Tech (XLK) 164.95-172.69 (bullish)
Consumer Discretionary (XLY) 200.08-214.75 (bullish)
Energy (XLE) 53.04-57.41 (bearish)
Financials (XLF) 36.77-39.97 (bearish)
VIX 12.92-32.39 (bearish)
USD 95.31-96.97 (bullish)
Oil (WTI) 62.14-83.04 (bearish)
Nat Gas 4.15-5.08 (bearish)
Gold 1 (bearish)
Bitcoin 53,942-61,190 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
