“Learning to ignore things is one of the great paths to inner peace.”
-Robert Sawyer
Interestingly, that quote comes from a well-known Canadian science fiction writer who makes his living off of narratives. I’m a writer who makes his living ranting and writing about numbers.
Back to the Global Macro Grind…
If I could “ignore” some of the things people say and do in markets, I would.
The problem is that a large part of my audience is getting fed Macro Tourist narratives and click-bait all day, every day. Especially if it’s an Institutional client asking, I have to answer.
Q: “KM don’t you think Down Bond Yields will be good for Tech and Social Media stocks – they’re getting cheap.”
A: No.
If only I could stop with a one word answer! If I could get away with the same to the follow-up question, I would too.
Q: “Ok, why?”
A: Quad Four
In 3 words, I just told you “why” my Long/Short Book was positioned the way that it was for the last 8 market days (we’re long Healthcare and Staples, XLV and XLP, which were both UP again yesterday in a down tape).
US Equity Beta (SPY) has been down for 7 of those 8 days.
I did have a bad day on that one 2.5 HOUR Bond Yields Down, QQQ Up day, but…
Q: “But, KM, you have to admit these stocks are getting pretty cheap.”
A: No I don’t.
In what world do I have to bow down to a “valuation” god that A) doesn’t exist with B) the wrong recession assumptions? As many long-term readers of my rants know, I NEVER start with valuation. I ALWAYS start with The ROC (rate of change) of The Cycle.
Q: “Ok, nice call – but don’t you think this is getting washed out.”
A: No.
These are, of course, my answers AFTER uniquely American short-term moves towards the top-ends of my Risk Ranges. On a day like today, with NASDAQ knocking on the F-Bucket’s door (NASDAQ Volatility closed at 28.11), things get more interesting.
Why?
- Now even consensus Macro Tourists are coming to realize that RECESSION RISK > yesterday’s INFLATION news
- Longer-term Bond Yields continue break-down for the 4th straight day into the PPI and CPI catalyst reports
- We could see the LOW end of the QQQ Risk Range right before those INFLATION prints
The Setup into big Macro Tourist event days always matters. And this one just got much more interesting:
- AFTER 4 straight down days for our Top 3 US Equity Sector Shorts, we’re getting close to the low-ends of Risk Ranges
- AFTER Bond Yields traded straight down with Oil, both are probing the low-ends of their respective Risk Ranges as well
- AFTER it snows and Boomer (my dog) goes outside, I can see the color yellow appear
Yes. Some things in life cannot be ignored. Yellow snow can be as clear as the sun rising in the East and/or something bouncing off the low-ends of my Risk Ranges!
But don’t get too excited, given the aforementioned Setup, an even bigger question is what happens if there is no bounce?
What happens if what just happened (i.e. a Global #Quad4 Recession in Demand and Down Bond Yields was NOT the catalyst to “Buy Tech”) just keeps happening? What if #NazVol (NASDAQ Volatility) flies again (i.e. right back into the F-Bucket)?
A: Bear markets crash from “oversold” levels
I’m old enough to remember the last 2x I helped you position profitably for this:
- Remember WHEN #NazVol corrected towards 25 in April (of this year)?
- Remember WHEN #NazVol corrected towards 25 in August (of this year)?
- Remember WHAT happened WHEN #NazVol broke out (above 29) into the F-Bucket, both times?
Whether or not you actually remember those reps in market or Cycle-Time doesn’t really matter. They happened. And they have a high probability of happening again, at some point, if The ROC of the US economy continues to slow at a faster pace.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.39-3.82% (bearish)
UST 10yr Yield 3.37-3.79% (bearish)
UST 2yr Yield 4.21-4.55% (bullish)
High Yield (HYG) 73.41-75.70 (bearish)
SPX 3 (bearish)
NASDAQ 10,706-11,370 (bearish)
RUT 1 (bearish)
Tech (XLK) 126-135 (bearish)
Consumer Staples (XLP) 75.01-77.55 (bullish)
Healthcare (XLV) 135-141 (bullish)
Defense (ITA) 109-114 (bullish)
Utilities (XLU) 69.19-72.14 (bullish) `
Nikkei 27,507-28,396 (bullish)
VIX 19.07-25.27 (bullish)
USD 104.11-108.33 (bullish)
Oil (WTI) 71.54-81.07 (bearish)
Nat Gas 5.02-6.79 (bearish)
Gold 1 (bullish)
Silver 20.71-23.67 (bullish)
AAPL 137-148 (bearish)
Bitcoin 16,002-17,396 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
