“What such a man needs is not courage but nerve control.”
- Theodore Roosevelt
Need to fade uniquely American FOMO, panic/perf stricken hedge fund short-covering, and yolo 1-day option expirations? Steady your nerves and have what Teddy Roosevelt called “cool headedness, which you can only get by practice.”
Ryan Holiday has an entire chapter about steadying your nerves in The Obstacle Is The Way: “When we aim high (and want to actually generate alpha in 2022), pressure and stress obligingly come along for the ride.”
“In these situations (when you need to fade bear market rallies), talent is not the most sought-after characteristic. Grace and poise are, because these two attributes precede the opportunity to deploy any other skill.” (pg 25)
Back to the Global Macro Grind…
At this point, unless they’ve been on the right side of this bear, most Institutional Money Managers don’t want to hear about how #HedgeyeNation did this year.
Almost every client call I do still has to do with not missing “bottoms” or “pivots.”
How about that “pivot”?
A) UST 2yr Yield has barely moved 1 basis point in the last 24 hours and continues to signal higher-highs
B) UST 30yr Yield ramped to a NEW CYCLE HIGH of 4.40% in the last 24 hours
Yeah, that pivot should be great for US mortgage demand, housing, etc.
And how about the nasty pivot in Asia in the last 24 hours?
A) US listed Chinese stocks went blotto yesterday (widely held BABA was down -15% intraday)
B) Taiwan (EWT) and Vietnam (VNM) continued to crash overnight (down -10.3% and -21.3% in the last month)
Oh, I know. No one owns VNM. And China is only 26% of TSLA’s revenues, so there’s nothing to see here. How about in Asian Investment Grade Bonds? Spreads there just widened the most in a month since the thralls of the pandemic.
‘But, but, KM… you have to admit, earnings are better than expected…’:
A) No I don’t
B) 106 of the SP500’s companies have reported an aggregate year-over-year EPS decline of -1.7%
WHEN did they start expecting that and/or a Chinese demand implosion?
A) SP500 Earnings were +11.3% and +8.4% year-over-year in Q1 and Q2 of 2022, respectively
B) Up until 3-6 months ago, Old Wall (Bloomberg estimates) were for +5-10% EPS growth in Q3/Q4 of 2022
These are only 20% of the Q3 numbers. Do you know how nasty this #ProfitRecession is going to get in Q4?
A) I don’t, but I do think I have the ROC (direction) right (a lot lower)
B) If and when companies lie to you about it, are you going to believe them (like many did in Q1/Q2)?
How about EVERY other major macro market other than US Equities in the last 24 hours?
A) London opened the FTSE down post the fancy new PM’s appointment
B) FX, Rates, High Yield, etc. look nothing like a chart of AAPL in the last 24 hours
Oh, and Commodities act great post the Chinese implosion (Oil and Copper down more than 1% this morning and both remain Bearish on both my TRADE and TREND signals), eh?
So why is it so hard for so many to have nerve control and just hit the sell button (again)? If you have patience, poise, and #process, this should all look straightforward to you (unless all you do is stare at what SPY is doing all day long).
If that’s your thing, did you see the super-short-term pin action in yolo SPX Index Options expiration yesterday?
Of the top 10 options positions on the board, 8 were SPX options that were expiring yesterday. Someone really wanted the 3800 line to print. And it did. Golf clap. Now what? You better be paying attention to the aforementioned nasty pivots.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 30yr Yield 3.88-4.45% (bullish)
UST 10yr Yield 3.85-4.33% (bullish)
UST 2yr Yield 4.31-4.66% (bullish)
High Yield (HYG) 70.61-73.09 (bearish)
SPX 3 (bearish)
NASDAQ 10,266-11,045 (bearish)
RUT 1 (bearish)
Tech (XLK) 114-127 (bearish)
Energy (XLE) 78.30-88.60 (bullish)
Shanghai Comp 2 (bearish)
VIX 28.65-33.98 (bullish)
USD 111.25-114.10 (bullish)
Oil (WTI) 81.33-88.92 (bearish)
Nat Gas 4.68-6.08 (bearish)
Gold 1 (bearish)
Copper 3.29-3.49 (bearish)
TSLA 198-226 (bearish)
Bitcoin 18,448-19,895 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
