“When people panic, they make mistakes.”
- Ryan Holiday
For short-term #behavioral perspective, I run contra-streams on both MSM headlines and Twitter every morning. I don’t have precious life or cycle time to read the articles. It’s all about the headlines and narratives embedded therein.
Old Wall Street has basically gone from hoping for a Fed pivot to begging for one. If you’re panicking about all of this, I hope you aren’t doing it with other people’s hard earned moneys.
As Holiday reminds us in The Obstacle Is The Way, “welcome to the source of most of our problems… when something goes wrong, the first thing we do is trade in our plan for a good emotional freak-out.” (pg 27)
Back to the Global Macro Grind…
“Panic has to be trained out. And it does not go easily.”
- Ryan Holiday
When I started down this path of writing to you at the top of the risk management morning 15 years ago, I would have never thought I’d be in the position that I’m in today.
I know it sounds cooler to have meta-vision and all that. But for me, I didn’t really think about it that way. I just thought about one-thing: getting up and grinding through the #process. Building this alongside my teammates has been just that.
All the while, I’ve seen massive supply of noisy and emotional short-cut content develop on Twitter, YouTube, etc…
If only The Game were that easy. Get up sometime after 6 or 7 AM, click on some bait, and “invest.” No thanks. The reason why most of these people are panicking right now is their performance this year. For many, it’s existential.
Instead of panicking and making more mistakes, why not go back and review what’s been working this year. Why not buy every damn dip in the US Dollar and sell every narrative-laden rip in what’s been crashing?
Here are some more questions for you:
A) Did you know that US stocks have been down for 3 of the last 4 days and the NASDAQ has crashed -32% from its peak?
B) Did you know that AAPL (now 14% of the NASDAQ) has an implied volatility DISCOUNT of -23% vs. 30-day realized?
C) Do you know what TSLA’s implied vol DISCOUNT is and how close it is to the top-end of its Risk Range?
If you have all of these questions answered, you haven’t wasted your precious life and (market) Cycle Time reading Zero Edge articles and clicking on some anti-alpha dude’s tweets about what “few understand” (other than his ETF has < $5M in AUM).
Here are some important numbers associated with questions A, B, and C:
A) QQQ has a complacent implied volatility discount of -8% and immediate-term downside in my Risk Range of -5.8%
B) AAPL’s Risk Range = $139-157 (-9.2% downside vs. +2.6% upside) and 1-month ago had an IVOL PREMIUM of +30%
C) TSLA’s Risk Range = $204-235 with an implied vol (IVOL) DISCOUNT of -13% vs. a +66% PREMIUM 1-month ago
*Power User Note: IVOL discounts appear AFTER bear market bounces; premiums blowout during bear market crashes
So, let’s say Powell doesn’t pivot? Then what are you going to do, panic? Or are you proactively preparing today?
A) That’s a LOT of immediate-term downside in the index
B) AAPL is now as widely held as it’s ever been (because they can’t own as much AMZN, MSFT, TSLA, GOOGL)
C) TSLA remains at the center of The Mother of All Bubbles
With panic and performance stricken Long/Short Hedge Funds and US “Retail Investors” chasing the uniquely American FOMO Futures (again) this morning, what’s The Setup in the FX and Bond Market?
A) Big-higher-lows for the US Dollar Index which remains Bullish TRADE and TREND @Hedgeye
B) Big-higher-lows and higher-highs for UST 2yr, 10yr, and 30yr Bond Yields
C) UST 10yr Yield has -9bps of downside to 3.90% and +45bps of immediate-term upside to 4.33%
In other words, The Setup for whoever is begging for a pivot tomorrow is not good.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 30yr Yield 4.02-4.41% (bullish)
UST 10yr Yield 3.90-4.33% (bullish)
UST 2yr Yield 4.28-4.66% (bullish)
High Yield (HYG) 70.99-74.69 (bearish)
SPX 3 (bearish)
NASDAQ 10,348-11,269 (bearish)
RUT 1 (bearish)
Tech (XLK) 118-131 (bearish)
Energy (XLE) 82.90-91.33 (bullish)
VIX 24.75-32.93 (bullish)
USD 109.24-113.90 (bullish)
EUR/USD 0.969-1.003 (bearish)
Oil (WTI) 82.65-89.56 (bearish)
AAPL 139-157 (bearish)
TSLA 204-235 (bearish)
Bitcoin 18,418-20,989 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
