An Obvious #Quad4 Week, It Was

“Courage is rightly esteemed the first of human qualities because it is the quality which guarantees all others.”
- Winston Churchill

While I don’t think that courage is the only word to describe having the discipline to stay with #Quad4 positioning, I’m happy that many of you have had the confidence to execute on your Full Investing Cycle #process.

As for our competition and/or those who chased the “charts” to bear-market-lower-highs back in July-August, I guess “if you are going through hell” (and hoping for the Fed to bail you out of an epic #Quad4 Growth Slowdown), “keep going.” 

That last quote is “often attributed to Churchill, though there is no indication that he ever actually said it. Still it reflects the dogged determination to get his nation to the other side.” -God and Churchill, pg 201

Back to the Global Macro Grind…

Welcome to another Macro Monday @Hedgeye where our #1 goal remains getting your hard earned capital to the other side (of the Sine Curve). After mapping last week’s market moves within the context of The Cycle, it remains an obvious Global #Quad4.

As a matter of process, we like to start with what Equity-Only people generally don’t, the Global Currency market:

1. US Dollar Index was up another +0.7% last week and up for the 4^th week in 5 to +14.7% YTD
2. EUR/USD was down another -0.3% last week and remains Bearish on both our TRADE and TREND durations
3. Japanese Yen was down another -0.3% last week, crashing to -19.5% YTD as Japan hits CTRL+Print
4. GBP/USD was down another -1.5% to new Cycle Lows last week, crashing to -15.6% YTD
5. Canadian Dollar got tagged for a -1.8% loss vs. USD last week alongside Commodities = #Quad4
6. Taiwan’s Dollar was down -1.4% last week to -4.4% in the last month alone and remains Bearish TREND

I wonder what the ole British Bulldog himself would think about the Pound getting pounded to new lows again this morning? Taiwan obviously has an unhealthy neighbor and plenty of geopolitical risk right now. We remain short of Taiwan via Equity (EWT).

On the Canadian front, those who are long of Commodities continue to get Quad4’d:

1. CRB Commodities Index was down another -1.9% last week, taking its TRENDING 3-month decline to -12.1%
2. Oil (WTI) was down another -1.9% as well, taking its TRENDING 3-month crash to -22.8%
3. Copper disinflated another -1.4% last week, taking its TRENDING 3-month decline to -15.1%
4. Cotton disinflated another -5.3% last week to -15.0% in the last month alone = Bearish TRADE and TREND
5. Lumber’s #Quad4 crash continued, -5.8% last week to -17.8% in the last month alone  

Inclusive of this morning’s decline, WTI Oil has crashed -32% from it’s Inflation Cycle Peak in June. Was that the “all-clear signal” to buy either Widely Held GROWTH stocks and/or Cyclical Growth like Alcoa (AA) or Fedex (FDX)?

A: Nope. Why?

Because Widely Held GROWTH is as dangerous a long as Cyclical GROWTH heading into a recession:

1. Basic Materials (XLB) were down another -6.8% last week to -10.6% in the last month
2. Industrials (XLI) were down another -6.4% last week to -11.3% in the last month
3. Widely Held Tech (XLK) was down another -6.2% last week to -14.8% in the last month

This wasn’t a “good call” by us. This was simply:

A) Having the discipline not to chase 50-day Moving Monkey charts in July/August
B) Having the #process to understand that GROWTH and INFLATION #slowing at the same time = #Quad4

If you have friends and fams that got that wrong, that’s ok. Remind them that everyone gets things wrong in this profession. The only way you lose a LOT of your hard earned capital is if you choose to stay wrong.

Looking across Asset Classes and my #VASP (Volatility Adjusted Signaling Process) Signals:

1. Chinese Stocks were down another -4.2% in Shanghai last week to new Cycle Lows
2. High Yield OAS Spread WIDENED another +38 basis points last week to +74 basis points in the last month
3. UST Yield Curve INVERTED another -17 basis points last week to -42 basis points on 10s minus 2s

I’m no Winston, but the courage of your #Quad4 conviction is best measured by how you positioned for all of this in July/August.

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

UST 10yr Yield 3.21-3.51% (bullish)
UST 2yr Yield 3.40-3.98% (bullish)
High Yield (HYG) 73.13-75.57 (bearish)           
SPX 3 (bearish)
NASDAQ 11,205-12,154 (bearish)
RUT 1 (bearish)
Tech (XLK) 126-137 (bearish)
Utilities (XLU) 73.43-78.75 (bullish)                                  `              
Shanghai Comp 3100-3231 (bearish)
VIX 22.47-28.65 (bullish)
USD 108.53-110.65 (bullish)
EUR/USD 0.988-1.012 (bearish)
USD/YEN 141.12-145.01 (bullish)
GBP/USD 1.134-1.166 (bearish)
CAD/USD 0.749-0.765 (bearish)
Oil (WTI) 81.58-89.35 (bearish)
Nat Gas 7.32-8.85 (neutral)
Gold 1 (bearish)
Copper 3.31-3.61 (bearish)
Bitcoin 18,104-21,207 (bearish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer