Your #Quad4 Fears

“The tendency to remember fearful situations can be adaptive, but in golf these persistent memories become more distracting.”
- Dr. Gio Valiante

Fearful of being squeezed in #Quad4? How about fearing that “#Quad4 is priced in?”

While I am writing to you from Alberta this morning, this is not my first rodeo in trying to address these fears. Every time stocks have a Counter @Hedgeye TREND bounce they populate my inbox (and Macro Show queue) like May flies landing late in June!

If your amygdala dominates your “feelings” and decision-making, that’s human. In Fear Is The Enemy (golf book written by Dr. Valiante) Ben Hogan himself admitted remembering “the negative more vividly than the positive.” Your goal should be to tone that down, big time.

Back to the Global Macro Grind…

Welcome to another Macro Monday @Hedgeye from Edmonton, Alberta where the CT Jr. Rangers just won their 3^rd straight Brick Championship (hockey tournament that many watched instead of Wimbledon yesterday, haha). Congrats to our club!

As a matter of repeatable process, we measure and map weekly macro market moves within the context of both The Cycle (Quads) and our proprietary TRADE, TREND, and TREND Signals.

Let’s start with the Global Currency Market:

1. US Dollar Index was up another +1.8% last week and remains our #1 Asset Allocation in #Quad4 at +11.9% YTD
2. EUR/USD was down another -2.2% last week and remains Bearish TRADE and TREND at -10.4% YTD
3. Japan’s Yen was down -0.6% vs. USD, crashing to -15.4% YTD = Bearish TRADE and TREND  
4. GBP/USD was down another -0.5% last week to -11.1% YTD = Bearish TRADE and TREND
5. Hungary’s Forint was down another -3.5% vs. USD, crashing -12.5% in the last 3 months
6. Poland’s Zloty was down another -4.1% vs. USD and is down -8.7% in the last month alone

So if you wake up in fear of #Quad4 “ending” every morning in America, cheer up. Other far-less-fortunate humans live in very close proximity to bombs dropping on their roofs while their currencies crash.

With the US Dollar now going vertical (up for 5 of the last 6 weeks and ramping higher again this morning), we get into the mainstream part of the Scary #Quad4 Movie (if you’re long of Commodities, that is):

1. CRB Commodities Index was down another -1.4% last week to -12.6% in the last month and remains Bearish TRADE and TREND
2. Oil (WTI) disinflated another -3.4% last week to -12.5% in the last month after breaking bad to Bearish TRADE and TREND
3. Copper continued to crash, down another -2.3% last week to -25.7% in the last 3 months
4. Oats disinflated -4.0% taking their 3-month Full Investing Cycle Crash to -23.0%
5. Orange Juice disinflated -3.2% last week to -11.5% in the last month and remains Bearish TRADE and TREND too

Oh, you have friends who don’t eat oatmeal or drink OJ? That’s cool. The market doesn’t care what people eat, drink, or think about war. The market does care about FULLY pricing in #Quad4.

This unadulterated US Dollar strength finally found its way to Gold last week, as many consider it a Commodity too:

1. Gold’s immediate-term TRADE correlation to USD is now -0.96!
2. CRB Commodities Index TRADE correlation to USD is now -0.81
3. Oil’s (WTI) immediate-term TRADE correlation to USD is now -0.76

So, if you want to have a panic-attack and sell your Gold near the low-end of its Risk Range (with USD signaling immediate-term TRADE overbought this morning, do that – it’s totally up to you).

Gold is now down -5% YTD (I know, lock the barn door, the scary people are coming for you) and signaling Bearish TRADE and TREND with TREND resistance at $1769/oz.

I’m not selling mine (yet) because long-term TAIL support remains intact at $1711, but that’s just me. I have plenty of alpha generating Commodity Shorts on the other side of Gold, don’t forget. And, yes, I still consider Gold a currency, not a commodity.

Another reason why Gold was -3.3% last week was Bond Yields DID NOT Break Bad to bearish @Hedgeye TREND yet:

1. UST 2yr Yield bounced a big +27 basis points off the low-end of my Risk Range last week and remain Bullish TRADE and TREND
2. UST 10yr Yield bounced +20 basis points last week and remain Bullish on my TRADE and TREND durations this AM as well
3. Yield Curve (10s minus 2s) got smoked for -7 basis points of compression last week and continues to signal recession

Unlike Gold, I did get out of Energy Stocks (XLE). They’re only -23.1% in the last month, so again, cheer up!

Chinese Stocks (Shanghai Comp) were up another +0.9% last week to +2.8% and +3.2% on a 1 and 3-month basis, respectively. Cheers to being long of those instead of our NASDAQ Short which is down -3.7% and -15.1% in the last 1 and 3 months.

And, once again, cheers to the CT Jr. Rangers and their Coaches Jeff Hamilton and Daryl Jonesy Buds Jones on winning The Brick #3Peat!

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

UST 30yr Yield 3.01-3.38% (bullish)
UST 10yr Yield 2.79-3.31% (bullish)
UST 2yr Yield 2.78-3.22% (bullish)
High Yield (HYG) 72.70-75.12 (bearish)            
SPX 3 (bearish)
NASDAQ 10,812-11,751 (bearish)
Tech (XLK) 125-134 (bearish)
Shanghai Comp 3 (bullish)
DAX 12,341-13,207 (bearish)
VIX 24.11-30.49 (bullish)
USD 104.52-107.98 (bullish)
EUR/USD 1.006-1.043 (bearish)
USD/YEN 134.98-137.73 (bullish)
GBP/USD 1.186-1.222 (bearish)
Oil (WTI) 96.62-108.07 (bearish)
Nat Gas 5.09-6.82 (bearish)
Gold 1711-1849 (bearish)
Copper 3.31-3.89 (bearish)
Bitcoin 18,999-22,159 (bearish) 

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer