“The world breaks everyone, and afterward, some are strong at the broken places.”
- Hemingway
While everyone was nailing it on the long side on Twitter yesterday, I started to get my second wind. I spent the whole day re-loading for #Quad4 Bear.
It wasn’t just Small Caps (IWM) that presented an excellent Selling Opportunity. It was High Yield (HYG) and Junk Bonds (JNK). It was, finally, the 1st immediate-term TRADE #overbought signal I issued in QQQ since March 17th too.
What were you doing yesterday? You know that what happened the whole way down in JAN-FEB and back up here on the MAR bounce no longer matters, right? What matters most is what happens next.
Back to the Global Macro Grind…
The aforementioned Hemingway quote is for people like me. You know, people who get things wrong for short-periods of time – people whose process is sometimes deemed to be “broken” when something isn’t going our way.
I am strong at the broken places because I don’t break down emotionally and give-up on my #process.
The big guy, Tony Robbins (he’s 6’7, 282lbs), calls this “restoring your connective tissue, head to toe.” In his new book Life Force, Robbins cited Major League Baseball beauty Miguel Cabrera’s fight with appearing “broken” at a certain point in his career.
“When I wake up, I don’t feel pain. I feel free.” (pg 261)
How do you “feel” this morning? What were you feeling when you were firing bullets into your Top 5-10 Short Positions into yesterday’s immediate-term TRADE #overbought US Equity market close?
I was feeling nothing at all.
You see, I don’t make market and/or risk management decisions based on my feelings. If I did that, I’d be a version of both my former broken self and/or the many failed Portfolio Managers I’ve known in the hedge fund business.
Yes, some of their failures were fatal. Unfortunately for the Perma Bulls, I’m not dead yet.
So, fundamentally, why “Sell Small Caps Now”?
A) SMALL CAP (IWM), as a Factor Exposure, is a Short in #Quad4
B) We are about to enter Deep #Quad4
C) #EarningsSlowing Season is pending
D) When a SMALL CAP misses, slows, or guides lower, there is no LIQUIDITY
E) Pods 1 (REVENUES) and 2 (EBITDA or EPS) #slow fastest in #Quad4
F) Did I mention #Quad4?
How about quantitatively?
A) Russell 2000 closed at 2133 and the top-end of my Risk Range™ Signal = 2143
B) Immediate-terms downside in my Risk Range™ Signal = 1990, or -6.6% from here
C) At 1990, the Risk Range™ Signal will be dropping below that level, signaling #crash (again)
Yeah, I think people probably know this by now… but after 4 straight SPY up days and the VIX in the Investable Bucket (i.e. when the VIX drops, in this case episodically, < 20) memories can be pretty short:
A) Russell 2000 is still down -12.7% from its #Quad2 in Q4 of 2021 Cycle Peak
B) #RussVol is not episodically in the Investable Bucket, it’s in The Chop Bucket at 25.65
C) At #RussVol (Russell Volatility or RVX) 33-35, “feelings” about your Small Cap picks will change
I’d hate to appear biased here against the Russell (it’s my middle name, so I have nothing personal against it), so to be a more well-rounded #Quad4 Bear this morning, here are my Top 5 Shorts (in my Long/Short book) ranked in terms of position SIZE:
- High Yield (HYG)
- Junk Bonds (JNK)
- The Gerbs (GK)
- Consumer Discretionary (XLY)
- NASDAQ 100 (QQQ)
If you’re new to #HedgeyeNation and/or an inexperienced Short Seller, here are some self-help points on the Top 5:
- High Yield always goes down in #Quad4 because both the Earnings and Credit Cycle turns negative
- Junk is called Junk for a reason – it’s the last thing you want to own when SPX Earnings go from 30% to 0% growth
- You’re getting a 2nd shot at shorting both The Gerbs and the Story Stock Tweeters? #awesome
- Consumer Discretionary remains a Top 2 Sector Style Short vs. our Top 2 Longs, Utilities (XLU) and Energy (XLE)
- Shorting the NASDAQ before these Final Four commercials is the March Madness you want in your life
I get it. Maybe I just want that in my risk managed life. But, since you can empathize with someone who’s made more publicly timestamped mistakes than anyone in Twitter history, don’t feel bad for me. My arm is no longer broken.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 2.11-2.55% (bullish)
UST 2yr Yield 1.85-2.44% (bullish)
High Yield (HYG) 80.11-82.99 (bearish)
SPX 4 (bearish)
NASDAQ 13,212-14,695 (bearish)
RUT 1 (bearish)
Tech (XLK) 146-164 (bearish)
Energy (XLE) 71.61-80.00 (bullish)
Gold Miners (GDX) 36.55-39.47 (bullish)
Utilities (XLU) 70.29-74.53 (bullish)
Shanghai Comp 3169-3304 (bearish)
DAX 13,895-14,860 (bearish)
VIX 18.04-28.43 (bullish)
USD 97.74-99.36 (bullish)
Oil (WTI) 98.23-117.63 (bullish)
Gold 1 (bullish)
Bitcoin 38,446-48,540 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
