“This will not be easy. To succeed, you will be required to face hard truths…”
-David Goggins
What’s easier is believing that the US Consumption data (ISM Services crashed to 49.6 in DEC from 56.5 in NOV) didn’t crash on Friday because of the color on your screens. “Crash Landing” isn’t a “fair” header – the plane hasn’t landed yet…
New Orders crashed to 45.2 in DEC from 56 in NOV. If that “sounds” like a lot, it is. Pre-pandemic, crashes in Consumption data like this are only rivaled by the US Consumption Crash call I made in 2008. See Macy’s (M) Friday (post close) commentary.
If The Game was easy, everyone would have crushed it last year. Your job was to be good at particular points in Cycle Time where narratives like “Fed Pivot” ended up being completely false. I think this is another obvious time to do that.
Back to the Global Macro Grind…
Welcome to Game 5 of 2023. It’s Macro Monday and the FOMO US Equity Futures are back, baby! If you spend your research time measuring and mapping The Cycle, you know exactly what to do as the US Consumption economy slows at a faster pace.
As Goggins says in his new book, Never Finished: “Self-mastery is an unending process. Your job is never finished!”
Let’s start with a contextualization of the Global Currency Market:
- US Dollar Index held its now longstanding @Hedgeye TREND support and was +0.34% last week
- EUR/USD started the 2023 down -0.6% on the week and remains the most consensus Net Long in Macro
- Yen started the year -0.7% weaker vs. USD but is the 1 major FX pair that is signaling Bullish TREND vs. USD
- GBP/USD was +0.1% after making another lower-high and still signaling Bearish @Hedgeye TREND
- Norwegian Krone was -2.0% weaker vs. USD and remains Bearish TREND alongside WTI Oil
- Chinese Yuan started 2023 with a +1.0% move – still Bearish TREND vs. USD but getting closer to changing
As we outlined in Theme #3 of last week’s Q1 Macro Themes presentation “Buy China?”, China should be the 1st major economy to Phase Transition out of its #Quad4 in Q4 Recession into #Quad1, but we don’t have that happening until Q2.
Have Chinese stocks started to front-run that? A: yes. Do I chase them up here at the top-end of their Risk Ranges after smoking US stocks last week? A: no. I don’t chase. I’m just happy I wasn’t short them!
We had been Short China for 2 years. This is a good example of having the patience and discipline to wait and watch on a Full Investing Cycle. It’s not uncommon for bear markets to last for 1.5-2 years.
If you “bought Commodities” on China going bullish by Q2, you got hammered by US Consumption Crashing last week:
- CRB Commodities Index crashed to new Cycle Lows, down another -4.7% last week (down > 20% from Cycle High)
- Oil (WTI) crashed another -8.1% last week to > 40% from its Inflation Cycle Peak
- Corn broke @Hedgeye TREND support (again) down -3.6% last week
- Natural Gas crashed -17.1% last week, crashing -31% in the last month alone
- Coffee’s Full Cycle Crash is now at -23.8% in the last 3 months post a -5.4% weekly decline
- Lumber’s Full Cycle Crash is now at -23.4% in the last 3 months post another -3.7% weekly decline
Do you really think everyone we compete with can contextualize US Consumption and Housing (collapsing) Demand through the lens of Coffee, Corn, and Lumber market signals? We want to play against them.
The Old Wall can, however, tell you that the Dow and Financials (XLF) are “above their 50-day Moving Monkeys.” So was the NASDAQ at this time and multiple times in 2022. Thanks for coming out.
While the US Labor Report was benign (and won’t change the Fed’s No-Pivot For You path), those ISM Services components were so bad that Bond Yields had to agree on Friday:
A) UST 2yr Yield corrected -18bps last week to 4.25% but is back up this AM to 4.28% after holding TREND support
B) UST 10yr Yield corrected -32bps last week to 3.56% (TREND Signal Support = 3.60%)
C) Yield Curve (10s minus 2s) crashed -14bps last week to a bone-chilling -69bps
Could buying duration work at some point? A: of course. Do you buy it here A) after it moved to the TOP end of my Risk Range and B) before Powell reiterates No Pivot tomorrow and we see a sticky CPI print on Thursday? A: I don’t.
Q: What was the Yield Curve Signaling in 1981? Buy Tech Stocks, Financials, and Crypto?
A: LOL
We don’t have to be long stocks or duration but we have 23 Macro ETF Longs right now and plenty of them will continue to do well if the Long-end of the curve breaks down from here and/or the Yield Curve remains this inverted.
Gold and Platinum (PPLT) both beat the NASDAQ again last week (QQQ was up a whopping +1.0% on the bear market bounce off its Cycle Lows) with GLD and PPLT +2.4% and +2.0%, respectively.
Utes, Staples, and Defense Stocks (XLU, XLP, and ITA) all signaled immediate-term TRADE #Overbought within their Bullish @Hedgeye TREND signals on Friday after someone big went big on those 3900 ODTA yolo SPY Call Options too!
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.66-4.06% (bullish)
UST 10yr Yield 3.55-3.99% (bullish)
UST 2yr Yield 4.22-4.48% (bullish)
High Yield (HYG) 72.42-75.74 (bearish)
SPX 3 (bearish)
NASDAQ 10,197-10,674 (bearish)
RUT 1 (bearish)
Tech (XLK) 119-126 (bearish)
Consumer Staples (XLP) 73.53-75.99 (bullish)
Defense (ITA) 109-114 (bullish)
Utilities (XLU) 69.48-71.88 (bullish)
Shanghai Comp 3045-3192 (bearish)
VIX 20.50-24.95 (bullish)
USD 103.11-106.43 (bullish)
EUR/USD 1.035-1.069 (bearish)
USD/YEN 130.52-135.02 (bearish)
GBP/USD 1.186-1.215 (bearish)
Oil (WTI) 71.40-77.86 (bearish)
Nat Gas 3.40-4.48 (bearish)
Gold 1 (bullish)
Bitcoin 16,409-17,299 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
