“Short-term judgment is like a free throw…”
- Daniel Kahneman
I keep citing Kahneman’s Noise book… because there’s plenty of that to deal with when the VIX is greater than 30…
In a chapter that he titled “Occasion Noise” he zeroes in on short-term flaws in human judgment using free throws by NBA basketball players: “however hard they try to repeat it precisely, it is never exactly identical.”
“Your judgment depends on what mood you are in, what you’ve discussed, and even what the weather is – you are not the same person at all times” (pg 93); especially AFTER major market corrections.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye. For those of you who are new to our #process, welcome. For those of you who keep coming back, thank you.
On the 1st day of every week we measure and map the weekly macro market moves within the context of both our TRADE and TREND Signals and The Cycle. Last week’s TRADE freaked people out… because it traded somewhat like #Quad4.
As always, let’s start with the Global Currency market which was relatively calm ex-Commodity Country currency moves:
- US Dollar Index was flat on the week and remains Bullish TRADE and TREND
- EUR/USD was flat on the week and remains Bearish TRADE and TREND
- Japanese Yen was +0.5% vs. USD last week and remains Bearish TRADE and TREND
- Canadian Dollar was -0.4% vs. USD last week and continues to breakdown as a Bearish TREND
- Norwegian Krone was -1.2% vs. USD last week and -7.4% in the last month alongside Oil’s decline
- AUD/USD was down another -1.6% last week to -6.0% in the last month and is also Bearish TREND
Aussie Dollars (AUD/USD) and Canadian Dollars don’t look any different than either the CRB Commodities Index or Norway’s currency – it’s all #Quad1 Disinflation from INFLATION’s Cycle Peak:
- CRB Commodities Index was down another -2.7% last week breaking bad to Bearish TRADE and TREND
- Oil (WTI) disinflated another -2.8% last week to -16.7% in a month and is also Bearish TRADE and TREND
- Corn corrected -1.3% last week to +2.1% in the last month and is one of the few Bullish TRENDs
- Cotton corrected -6.8% last week to +11.7% in the last 3 months and is Bearish TRADE, but Bullish TREND
- Sugar deflated another -3.1% last week to -3.3% and -7.7% in the last 1 and 3 months = Bearish TREND
That’s right. I go both ways… because both the data and The Cycle does. I fade “Occasion Noise” by using a multi-factor and multi-duration approach to measuring and mapping markets.
They are either bullish or bearish TRADEs and TRENDs. They don’t have moods or feelings.
If Bond Markets had the same “feelings” as US Equity and Commodity markets, they’d have had the same directional weekly moves and TRADE and TREND signals. On two big scores, they did not:
- UST 2yr Yield was UP +9 basis points last week to 0.59% and remains Bullish TRADE and TREND
- High Yield OAS Spread was DOWN -15 basis points last week and remains Bearish TRADE and TREND
UST 2yr Yields rising as High Yield “risk” (spreads) is falling is a fractal Similar Set that only happens when the US economy is #accelerating on a TRENDING basis.
Not that anyone who was “degrossing” or “feeling” on Friday was allowed to notice, but alongside a Goldilocks #Quad1 OCT/NOV (with revisions) US Jobs report, the ISM Services report for NOV #accelerated to an ALL-TIME-HIGH of 69.1.
Was that “why” Chinese (+1.2%), Indian (+0.8%), and Italian (+0.3%) stocks were all UP on the week? Is that “why” stocks opened +0.7% higher in London this morning AFTER the FTSE was UP +1.1% last week?
I don’t know. I try not to anchor on “why” and focus more on both “when” and “what is.”
Uniquely American panic wasn’t in USD (flat week-over-week), the short-end of the bond market, or in its own High Yield market. It was where it’s been all year long – in stocks! If you take a deep breath and look at it for what it was though:
- Tech Stocks (XLK) were down a whopping -0.6%, taking their TRENDING return to +3.6% in the last 3 months
- Consumer Discretionary (XLY) was down -2.2%, taking its TRENDING return to +8.8% in the last 3 months
Since those are the Top 2 Sector Styles I want to be allocating my hard earned assets to as we make this INFLATION Cycle Peak to #Quad1 Phase Transition, I was buying both on red on Friday with the VIX > 30.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.31-1.71% (bullish)
UST 2yr Yield 0.47-0.68% (bullish)
SPX 4 (bullish)
NASDAQ 15,001-16,092 (bullish)
RUT 2107-2379 (bullish)
Tech (XLK) 164.19-172.02 (bullish)
Consumer Discretionary (XLY) 197-214 (bullish)
Shanghai Comp 3 (bullish)
VIX 15.18-34.77 (bearish)
USD 95.41-96.95 (bullish)
EUR/USD 1.119-1.141 (bearish)
USD/YEN 111.81-116.01 (bullish)
CAD/USD 0.775-0.791 (bearish)
Oil (WTI) 60.12-81.09 (bearish)
Nat Gas 3.75-4.94 (bearish)
Bitcoin 46,113-58,628 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
