“Real toughness is much harder than the fake kind.”
-Steve Magness
New year. New Books. Always learning, we are. The aforementioned quote comes from a new #behavioral and decision-making book I’m studying called Do Hard Things: Why We Get Resilience Wrong and The Surprising Science of Real Toughness.
I have evolved plenty of my own thoughts and disciplines on this topic. Magness is a former runner, so he’s giving me a different perspective (but the same conclusion): “Real toughness is experiencing discomfort or distress, leaning in, paying attention…
And creating space to take thoughtful action. It’s maintaining a clear head to be able to make the appropriate decision” (pg 13). Did you panic buy/cover at yesterday’s Gamma Squeeze intraday highs? Or did you fade it and execute on the #process?
Back to the Global Macro Grind…
For those of you who don’t know the Options definition of a Gamma Squeeze, it’s when things go straight up in a very short period of time. Especially with The Machine’s current structure and dynamics, LARGE short-term Call Option Buying triggers it.
Who does this? LOL, guess.
The who and the why matters a lot less than the WHEN. Where these Gamma Squeezes come from is crystal clear (from the LOW-end of my Risk Ranges AFTER consensus has sold down Gross Long Exposure, shorted stocks, and bought puts/protection).
WHEN you fade them is from the TOP-end of my Risk Ranges.
Yes, you may experience some physical and/or emotional discomfort during the final 2-3 hours of these bloody things. Don’t call your doctor for a solution. They are your own. You need to learn to slow The Game down when others panic.
Yesterday’s intraday GS Factor Squeeze Basket was led, once again, by:
- Bitcoin Sensitive Equities
- Profitless Tech
- High Short Interest Retail
That’s right, if you’re in the High Short Interest Retail Bear Basket, it didn’t matter what your company hasn’t yet reported (if you reported it like Macy’s and LULU did, you got pounded). In the very short-term during the Gamma Squeeze, Stock Go Up.
Then Stock Go Down.
After you execute in these OODA Loops for going on a Full Investing Cycle year now, what we call Emergent Properties & Similar Sets in Fractal Math become quite familiar. The players in The Game who trigger the squeezes aren’t that creative.
Yesterday’s intraday highs we’re triggered by:
A) Epic 0DTE Call Option Buying on Friday
B) Epic Short Covering by Hedge Funds in the 1st 2-3 hours of Monday trading
I don’t have to tell you who. Obviously you can see the order flow. And double-obviously, anyone who is buying the crap out of 0DTE (that’s a zero then DTE, as in ZERO days to expiration options) options is playing a game within The Game.
It also has ZERO to do with The Cycle.
The biggest #behavioral problem many Portfolio Managers and traders have is that they don’t understand that last part. They think every move in markets is “fundamentally” driven. Even if they’re a good analyst (and realize it isn’t), their boss doesn’t!
In the last two #Quad4 Recessions that I made money, I didn’t have to deal with the dynamics of The Machine as they are today:
A) Now the US Equity market is especially illiquid in single stocks and credits
B) And now the US Options market is largely controlled by 3 Dealers
If you need me to name the 3 most active Dealers, you need to level up. It’s ok if you haven’t yet. I work on leveling my game up each and every market day! Welcome to Game 6 of 2023.
Update on The Cycle and our proprietary US INFLATION Nowcast (because it’s the catalysts for post Gamma Squeeze crashes in stocks back to the LOW end of their Risk Ranges):
A) Old Wall is begging for a big headline CPI slowdown towards 6.5% on Thursday
B) Our 7.19% Q4 CPI Nowcast implies a 6.71% print
A couple of important points on that. If the CPI is at or higher than 6.71%, that’s a major problem for the bulls who keep begging for a “Fed Pivot.” Any print for this month and the next few that’s between 6-7% is NOT going to get the Fed to pivot anyway.
That means that QQQ could be down -4.7% from where I sent you my SELL Signal on it in Real-Time (Coaching) Alerts yesterday and no one should be surprised. That would be a new closing low for The Cycle. It matters WHEN you execute to capitalize on it.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 3.48-4.01% (bullish)
UST 2yr Yield 4.18-4.50% (bullish)
High Yield (HYG) 72.21-75.89 (bearish)
SPX 3 (bearish)
NASDAQ 10,163-10,691 (bearish)
RUT 1 (bearish)
Tech (XLK) 119-127 (bearish)
Defense (ITA) 109-113 (bullish)
Utilities (XLU) 69.52-71.97 (bullish)
VIX 20.82-24.90 (bullish)
USD 102.65-106.14 (bullish)
Oil (WTI) 71.06-77.36 (bearish)
Nat Gas 3.32-4.36 (bearish)
Gold 1 (bullish)
Copper 3.70-4.04 (bullish)
Silver 23.25-24.61 (bullish)
Bitcoin 16,318-17,405 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
