“Anything that can be prevented, taken away, or coerced is not a person’s own.”
-Epictetus
The US Stock Market was up for 2.5 hours of trading (and down for 4 of 5 days) last week. I get how bad this year has been for many. But think about how panic-stricken many people are at this point about something that can quickly be taken away.
The aforementioned quote comes from yesterday’s meditation in The Daily Stoic. It was appropriately titled “You Don’t Own That.”
“We may claw and fight and work to own things, but those things can be taken away in a second” (pg 360). Truth. But no one can takeaway the patience and discipline embedded in your longer-term Full Investing Cycle #process.
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye where nothing about the process starts panting like a food-deprived SPY dog. We measure and map both markets and the ROC (rate of change) of Global Economic data within the context of The Cycle.
As a matter of deliberate study, let’s start with the Global Currency market:
- US Dollar Index down to levels not seen since the last major buying opportunity = VIX 19 in AUG
- EUR/USD was +1.4% last week to the top-end of its risk range and is currently the most consensus long in Macro
- Yen squeezed for a +3.6% weekly move vs. USD to DOWN -14.3% YTD (that’s still in crash mode fyi)
- Canadian Dollar was down -0.7% vs. USD last week and remains Bearish TRADE and TREND
- Argentina’s Peso continues to get pounded, down another -1.7% last week, crashing -18.1% in the last 3-months
Don’t expect Messi getting the job done at the World Cup to resolve Argentina’s Currency Crash of 2022. And don’t expect my Full Cycle TREND Signal on Yens and Euros to change because people with 50-day Moving Monkey charts do.
The USD move was largely a panic/chase flow trade in Euros and Yens. It wasn’t in Canadian Loonies. To put the aforementioned consensus positioning in context, see today’s Chart of The Day (CFTC futures and options positioning):
A) US Dollar Longs down to < 25k contracts = -2.17x on a 1yr z-score
B) Euro NET LONG up to an eye popping > +132k contracts = +2.36x on a 1yr z-score
We get it, the 2.5 HOUR bull market in everything US Stocks and Commodities was an echo of the 2 DAY Rally post CPI disinflating to 7.7% last month. But what happens when it doesn’t slow to < 7% this month? We’re at 7.52% for #Quad4 in Q4 fyi.
Like US Equity Beta (SPY +1.1% on the week with the +3.1% up day coming in 2.5 HOURS), some Commodities bounced last week:
- CRB Commodities Index was +1.3%, taking its 3-month TREND of pricing in SLOWER DEMAND to -2.7%
- Oil bounced +4.9% last week, taking its 3-month TREND or pricing in SLOWER DEMAND to -6.1%
- Corn did not bounce. It was down -3.7% last week and remains a relatively new Bearish TREND @Hedgeye
- Lumber continued to see its crash in Housing Demand, down another -6.2% to -20.5% in the last 3-months
- Natural Gas got nuked for a -14.3% loss last week, crashing -30.8% in the last 3-months
Unlike when the US and European economies were in #Quad2 (Long Commodities), in #Quad4 DEMAND SLOWS. See how I did that? I went ALL CAPS on you two different ways already this morning using the words SLOW and DEMAND. #Stoic stuff there.
The real pin action last week wasn’t in being long US Equity Beta for 2.5 HOURS. It was in being Long Precious Metals:
- Gold (GLD) was +2.3% last week to +4.3% in the last 3 months
- Silver (SLV) was +7.6% last week to +29.0% in the last 3 months
- Platinum (PPLT) was +3.9% last week to +24.8% in the last 3 months
We remain Long of all 3 of those Precious Asset Allocations because we understand that:
A) Longer-term Bond Yields eventually break-down alongside SLOWER DEMAND … and
B) Yield Curve Inversion at NEW CYCLE LOWS of -79bps on 10s minus 2s last week is just plain bearish economically
Let’s look at that divergence in US Treasury Yields across durations:
- UST 2 year Yield TREND support = 4.03% remains very much intact
- UST 10 year Yield TREND support = 3.58% snapped last week
- UST 30 year Yield TREND support = 3.68% snapped last week
Oh, SNAP (short more of that and META Bubble again this morning too – both are at the top-ends of their Risk Ranges and remain Bearish @Heedgeye TREND Signals)!
On US Equity Sector Styles, everyone wasn’t a winner last week:
A) Financials (XLF) were actually DOWN -0.5% last week (think about why – I won’t use those two words)
B) Healthcare (XLV) was up another +1.9% for the home team last week taking its 3-month return to +11.8%
Yep, we have plenty of Longs (17 ETFs) right now (including Healthcare, Defense, and Staples stocks as our Top 3 Signal Strength Sector Styles in US Equities) that enjoy #Quad4 when the VIX is down here.
The risk, of course, is that all of our recent returns on the Long Side can also be taken away on a VIX move back into the mid-20s.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.53-3.94% (bearish)
UST 10yr Yield 3.48-3.89% (bearish)
UST 2yr Yield 4.24-4.60% (bullish)
High Yield (HYG) 73.16-75.99 (bearish)
SPX 3 (bearish)
NASDAQ 10,765-11,513 (bearish)
RUT 1 (bearish)
Tech (XLK) 127-137 (bearish)
Consumer Staples (XLP) 74.05-77.61 (bullish)
Healthcare (XLV) 134-141 (bullish)
Defense (ITA) 109-115 (bullish)
VIX 18.98-25.30 (bullish)
USD 104.03-108.96 (bullish)
EUR/USD 1.012-1.056 (bearish)
USD/YEN 133.90-142.31 (bullish)
CAD/USD 0.734-0.752 (bearish)
Oil (WTI) 75.61-82.61 (bearish)
Nat Gas 5.81-7.84 (bearish)
Gold 1 (bullish)
Silver 20.38-23.43 (bullish)
META 102-124 (bearish)
TSLA 163-202 (bearish)
Bitcoin 15,762-17,404 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
