#Quad4 Commodities Crash

“You’ve got to love to lose money, hate to make money…”
- Everett Klipp

There are a lot of paradoxical quotes like that in both markets and in life. Mark Spitznagel used the aforementioned one to introduce a chapter in The Dao of Capital called The Daoist Sage – Klipp’s Paradox.

Klipp was a Chicago grain trader. If he was whipping them around during this particular stage of #Quad4, I don’t think he’d love being long of Corn or Cotton right now inasmuch as Steve Stamkos didn’t like losing to the Avs last night.

Congrats to the Colorado Avalanche in winning their 1^st Stanley Cup since 2001. Congrats to our 2010 Pee-Wee CT Jr. Rangers boys (and a girl) who won the prestigious Super Series Triple Crown in Montreal yesterday. You’ve got to love to win too!

Back to the Global Macro Grind…

Welcome to another Macro Monday @Hedgeye! Thanks to my teammates for running The Macro Show while I coached the kids in Montreal. After coaching 9 games in 5 days, my voice has also crashed during #Quad4!

As always, let’s measure and map what Global Macro markets did week-over-week so that A) we aren’t getting whipped around by chasing losing trades and B) we’re focused on winning a Full Investing Cycle Championship.

Starting with the Global Currency market, it was what we call a Counter @Hedgeye TREND correction in USD last week:

1. US Dollar Index was down for the 1^st week in 4 last week, correcting -0.5% to +8.9% YTD
2. EUR/USD bounced +0.5% last week but remains Bearish on both my TRADE and TREND durations
3. Yen was still down another -0.2% vs. USD last week, taking its YTD crash to -14.9% YTD
4. GBP/USD was +0.2% last week and remains Bearish TRADE and TREND as well
5. Colombia’s Peso was down a big -6.0% vs. USD last week to -8.4% in the last 3 months

If you didn’t know that about the Colombian Peso, now you know.

Measuring and mapping EVERYTHING matters as much in markets as paying attention to EVERYTHING in a playoff hockey game. If you just focus on who scores (or what “sta-hh-ks!” were up last week), you don’t get The Game, obviously.

Yes, US stocks were finally up last week. But plenty of Commodities continued to have a #Quad4 Crash:

1. CRB Commodities was -3.4% last week confirming a TRADE and TREND breakdowns
2. Oil (WTI) only corrected -0.3% last week but A) is signaling Bearish TRADE and B) Neutral TREND
3. Nat Gas continued to crash, down another -10.4% last week to -29.6% in the last month alone
4. Copper continued to crash, down another -7.1% last week to -21.0% in the last 3 months = Bearish TREND
5. Corn collapsed -7.8% last week after breaking bad to Bearish TRADE and TREND @Hedgeye  
6. Cotton crashed -17.1% last week to -20.8% in the last month
7. Nickel continued to crash, down another -12.7% last week to -39.9% in the last month

And if you didn’t know that the price of Potatoes has crashed -39.4% in the last month, now you know that too.

But, but, KM, that means “inflation has peaked and buy … profitless Tech… and all the companies that are about to see peak #Quad2 earnings (from last year) crash”, eh?

A: no. In a typical #Quad4, both Tech and Commodities are crashing, at the same time.

But, but, Bond Yields were finally down. Yep, that happens in a typical #Quad4 too, but it’s not signaling a TREND, yet:

A) UST 10yr Yield was -10 basis points last week but is +38 basis points in the last month
B) UST 30yr Yield was only down -2 basis points last week and is +29 basis points in the last month

Both the short and long-end of the Yield Curve are still signaling higher Cycle Highs for Bond Yields (that’s bearish for bonds). If and when the demand destruction you are seeing in everything from Lumber (Housing) to Potatoes changes that, I’ll let you know.

Btw, if you asked the Credit market instead of Cramer, High Yield OAS Spreads looked NOTHING like the bear market bounce in US stocks last week with a further WIDENING of +5 basis points to +155bps WIDER in the last 3 months.

But, but, can you tell me about stocks? Oh yes (and we like Chinese stocks):

1. NASDAQ had a big bear market bounce of +7.5% last week taking its TRENDING Full Cycle (3-month) Return to -18.2%
2. Germany’s DAX was actually down -0.1% last week taking its TRENDING Full Cycle Investing (3-month) Return to -8.1%
3. China’s Shanghai Comp was up another +1.0% last week to +9.1% and +3.1% in the last 1 and 3-months, respectively

Yep, no worries. We have a risk management process that helps you go from Bearish to Bullish on an Asset Class. We’d been bearish on Chinese Equities for the prior 1.5 years.

Thank goodness we didn’t have to put up with Old Wall media and CNBC trying to pick bottoms in Shanghai on every bear market bounce for 18 months. That’s such a stinky business.

Stay with our Full Investing Cycle #process. It doesn’t win every week, but it does win long-term Championships.

Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:

UST 30yr Yield 3.17-3.52% (bullish)
UST 10yr Yield 3.03-3.54% (bullish)
UST 2yr Yield 2.89-3.49% (bullish)
High Yield (HYG) 72.12-76.00 (bearish)          
SPX 3 (bearish)
NASDAQ 10,460-11,661 (bearish)
RUT 1 (bearish)
Tech (XLK) 120-135 (bearish)                                                
Shanghai Comp 3 (bullish)
DAX 12,809-13,515 (bearish)
VIX 26.03-34.94 (bullish)
USD 102.95-105.93 (bullish)
EUR/USD 1.037-1.062 (bearish)
USD/YEN 132.39-137.54 (bullish)
GBP/USD 1.200-1.242 (bearish)
Oil (WTI) 101.15-113.16 (neutral)
Nat Gas 5.71-7.68 (bearish)
Gold 1 (bullish)
Copper 3.61-4.00 (bearish)
Bitcoin 18,991-23,004 (bearish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer