“Intelligence is the ability to adapt to change.”
- Stephen Hawking
Who’s really “smart”? On Day 1 on Wall Street we’re told how “smart” everyone is. It makes simple sense. Everyone on Wall Street is trying to sell you something. It’s great salesmanship to tell your bosses and clients how smart they are.
With time and space you learn that’s not true. Book smart isn’t Street smart. I’ll side with Hawking and coach every new player who plays on my team that the best players in The Game’s history have the ability to adapt as The Game is changing.
On that score, I have a question for you: who’s good at short selling? And I don’t mean picking a few stocks. I mean going from long to short, across cycles, and trading their shorts profitably? If you send me their returns, I’ll happily publish the Top 10.
Back to the Global Macro Grind…
Top 10 in a world of how many hedge funds? It shouldn’t be hard to find 100 funds (that actually hedge) that can make money in both up and down tapes, no? I think these alpha generators deserve to be highlighted. The Game’s Top Scorers always should be.
On days like yesterday, I don’t hear from the Top 2022 Scorers. Instead, both my inbox and Contra Stream light up like a Christmas tree. “KM, how can this be happening? Can you believe people are buying them up here? This isn’t right.” Etc. etc.
And I’m like, chill dude. This is what bear markets do when they bounce (or they wouldn’t be bear markets!).
I’ve been risk managing (i.e. trading) bull and bear markets since 1998. The biggest bear market bounces I had to risk manage were those of 2008. The ones we’ve seen so far in 2022 are baby bears compare to that.
Back then, I didn’t have my Contra Stream (an unbelievably valuable stream of Twitter follows that I’ve curated over the years for both #Noise and #UninformedVolume), and I didn’t have many Institutional Clients either.
So I didn’t get the critical feedback loop that our content platform generates today. I’m sincerely grateful for it.
But, back then in 2008, I used the same #VASP (Volatility Adjusted Signaling Process) to fade my feelings and execute, profitably, from the short (bear) side all the way up until April of 2009.
And you know what happened to most of the high profile bears of 2008? They stayed bearish in 2009 and died.
I’m still here though, like a brave-hearted Irish-Canadian idiot, timestamping every bloody move I make. And lots of my followers still just don’t follow me making the moves that I make.
Why? Everyone is “smart.” Everyone has their own decision-making process. Everyone has their own emotions too. What differentiates my short-selling process? A: WHEN. When matters more than WHY. Always.
So let’s go through what the players who play The Short Selling Game at the highest level and consistently generate alpha do:
A) They fade their “feelings”, buying/covering on red, and selling/shorting on green
B) They don’t press their shorts at the LOW end of the Risk Ranges (they cover-SOME down there)
C) They don’t panic-cover their shorts at the TOP end of the Risk Ranges (they reload up there)
How simple is that? Let’s call those the ABC’s of how to be a nice profitable bear.
Maybe I should start a business school for bears? You know they don’t teach you how to be a Short Seller at business school, right? If anything, that’s where they teach you how to get beat up by professional bears with Street smarts!
Without rattling off their YTD performance numbers, this is what consensus hedge funds do:
A) They chase the daily/weekly direction of the tape
B) They panic-sell low
C) They buy/cover high
No, I didn’t say all hedge funds do that. I said the Consensus (underperforming) ones do. This is what they did yesterday:
- Hedge Fund “Buy Skew” (order direction on one of the biggest sell side desks) was in the 90th percentile yesterday
- Hedge Fund Squeeze Baskets (Bubble Multiple Software, Profitless Growth, and Most Shorted) led Factor Exposures
- Consumer Discretionary (XLY) was the #1 Sector Style on the day at +3.1%
This all happened with Total US Equity Volume (including dark pool) down -18% vs. the 1-month average. In other words, as both the NASDAQ and Russell 2000 started approaching the top-end of my Risk Ranges, consensus positioning was to panic-cover shorts.
Panic-covering on #decelerating volume is not what I do.
In fact, when you see markets squeezing and me doing nothing, that’s doing something.
That’s called having the #patience to wait and watch for more predictable squeezage… because I’ve played The Game from the bear side for going on 23 years and have a LOT of reps (and bear scars to show for it!).
When I say “doing nothing” I mean in my Real-Time (Coaching) Alerts, btw. When you see me doing something, it’s not random.
When you see me, in rapid succession, re-short QQQ and TSLA (haven’t done that yet) and 6-12 other shorts (and sell most of my longs), you’ll see my “skew.” And, yes, it’s generally the opposite of the aforementioned Consensus Skew.
So, again, I’m not trying to tell you that you aren’t smart this morning. I’m just a Mucker. And I am trying to coach you through something that’s critical to both your short and long-term performance.
The better you get at the ABC’s of being a good bear, the less panic we’ll have in the #HedgeyeNation community. And the more money we’ll all make throughout the Full Investing Cycle of a Deep #Quad4.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 2.66-2.98% (bullish)
UST 2yr Yield 2.38-2.74% (bullish)
High Yield (HYG) 75.03-80.16 (bearish)
SPX 3 (bearish)
NASDAQ 11,019-12,493 (bearish)
RUT 1 (bearish)
Tech (XLK) 128-145 (bearish)
Utilities (XLU) 71.38-76.20 (bullish)
VIX 23.77-31.60 (bullish)
USD 101.17-103.99 (bullish)
EUR/USD 1.047-1.081 (bearish)
USD/YEN 126.03-130.49 (bullish)
Oil (WTI) 109.71-118.25 (bullish)
Gold 1 (bullish)
Copper 4.16-4.56 (neutral)
MSFT 249-279 (bearish)
AAPL 135-153 (bearish)
AMZN 1 (bearish)
FB 178-203 (bearish)
GOOGL 2061-2370 (bearish)
NFLX 176-207 (bearish)
TSLA 606-783 (bearish)
Bitcoin 27,993-31,791 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
