“It’s the best lobster I’ve ever eaten.”
- Tim Kennedy
This bear’s gotta eat too. Right now, I’m eating my usual bowl of blueberries with some yogurt, honey, and granola. I know, you really care about that right about now.
The aforementioned quote comes from a funny excerpt in Scars and Stripes where Tim Kennedy decided to deviate from his deep sea diving certification #process and opt for a meal.
“Finally, with my gear on and lobster in hand, we surfaced… One millisecond later, I am greeted with the most impressive display of vulgarity and anger that I have ever encountered… I’ve now been in the military for almost 20 years, and this Master Diver puts any drill sergeant, Ranger Instructor, or SERE Instructor to shame.” (pg 37)
Back to the Global Macro Grind…
Do you have friends who chased yesterday’s intraday US Equity FOMO high? Shame, shame, shame.
If they were working for me, that is precisely what I would tell them. Why? A: we don’t chase bear market bounces at the top-ends of my Risk Range™ Signals. We short/sell into them.
I know. It’s not for everyone. There are lot of soft people out there who can’t either think for themselves (across all of Global Macro) and/or execute and fade the crowd at particular points in Cycle Time that matter.
If they could, more bears would be eating alpha this year.
That’s why this bear doesn’t trade on emotion or “feel.” I use math. Let’s use today’s SPY Setup as an example:
A) TOP-end of my SPX Risk Range™ Signal = 3762
B) LOW-end of my VIX Risk Range™ Signal = 29.67
C) Implied Volatility on SPX just dropped to a -6% DISCOUNT vs. 30-day realized
Now let’s look at my notebook from only 1-week ago today (same hour of the morning for me):
A) SPX closed at 3588 on the day prior and the Risk Range™ Signal was 3
B) SPX VIX closed at 33.63 on the day prior and the Risk Range™ Signal was 28.85-34.47
C) Implied Volatility on SPX had ramped to a +18% PREMIUM vs. 30-day realized
For those of you who are new to my risk management #process, the best setups are:
A) When something is either at the LOW or TOP end of my Risk Range™ Signal… and
B) When that something has a cresting IVOL Premium or tanking IVOL Discount
You don’t get those every day. There are usually 1-5 days in a month where you really get paid to execute on the process by fading the crowd.
Consider doing the opposite last week:
- You sold or shorted SPX with the VIX at the TOP-end of its Risk Range™ Signal (i.e. around 34)
- You bought or covered SPX with the VIX at the LOW-end of its Risk Range™ Signal (i.e. around 29)
That’s just not good decision making. So tell those friends of yours who keep chasing to #GetBetter.
What’s most interesting (but consistent and not at all surprising) is that these uniquely American FOMO (Retail Investor) and panic/perf stricken hedgie short covering rallies:
A) Aren’t confirmed by anything that’s happening in FX, Commodities, or Rates markets… and
B) Are ending almost as fast as they start
Trading Equity Vol in the 30s is no game for Old Wall people who have never called for or made money in a bear market. We affectionately call this Regime of Volatility the F-Bucket of Volatility for that very reason.
Cross Asset Class Volatility obviously matters as much as Equity Vol. Here are particularly important callouts today:
- FX Vol continues to signal Bullish TRADE and TREND with a BIG-higher-low in my USD Risk Range™ Signal
- Treasury Bond Vol (MOVE Index) continues to signal Bullish TRADE and TREND with rates signaling higher-highs
- Commodities Vol (ex. Some components of Ag) continues to signal Bullish TRADE and TREND with Copper down
When the Volatility of something is signaling Bullish on both my immediate-term TRADE and intermediate-term TREND durations, that’s very bearish for whatever that something is.
Not everyone sees The Game this way. That’s good for all of us. Not everyone sees a lobster at 150 feet deep (VIX > 29) that they gotta eat either. “I peer in. I can barely see the reflection of those cocky little beady eyes…”
“I’m going to get this bastard.” -Tim Kennedy
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 30yr Yield 3.75-4.08% (bullish)
UST 10yr Yield 3.76-4.08% (bullish)
UST 2yr Yield 4.12-4.53% (bullish)
High Yield (HYG) 70.17-73.29 (bearish)
SPX 3 (bearish)
NASDAQ 10,108-11,040 (bearish)
RUT 1 (bearish)
Tech (XLK) 113-124 (bearish)
Energy (XLE) 77.12-83.72 (bullish) `
Shanghai Comp 2 (bearish)
Nikkei 26,056-27,329 (bearish)
DAX 12,004-12,799 (bearish)
VIX 29.67-34.20 (bullish)
USD 110.96-114.06 (bullish)
GBP/USD 1.085-1.144 (bearish)
Oil (WTI) 81.15-90.97 (bearish)
Nat Gas 5.54-6.86 (bearish)
Gold 1 (bearish)
Copper 3.29-3.49 (bearish)
Bitcoin 18,408-20,234 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
