“It’s easy to be scared. Especially lately.”
-Ryan Holiday
As I’ve explained over and over (and over) again… for the past 12 months of calling this bear market, many Institutional Investors I speak with haven’t been scared about the downside. They’re scared of missing the upside.
With 3 Longs and 24 Shorts right now in Real-Time (Coaching) Alerts and a -10.3% Net Short position in my Long/Short Book, evidently I am not scared. Maybe I have a mental block or need some meds. Maybe I’m just executing on my #process.
I get it. We all struggle with our emotions. “Even the ancient Stoics, supposedly masters of all emotions, conceded that we have involuntary reactions. They had a word for these immediate, precognitive impressions of things: phantasiai.” (pg 13)
Back to the Global Macro Grind…
Have you recently had a phantasiai? It’s pronounced fan-tah-see-ah. It’s based on having a “sense experience.”
Example: let’s say you were short Blood Bath & Beyond (BBBY). It was down -25% the other day with bankruptcy (like Party City, PRTY) imminent. Yesterday The Machine had people chasing it +69% into the close.
BBBY Bears had a fan-tah-see, yah day!
“Do you know what the most repeated phrase in the Bible is? It’s Be Not Afraid.”
-Ryan Holiday, Courage Is Calling (also pg 13)
The #1 reason why the NASDAQ can keep crashing from here is that it just went up.
To be mathematically specific, it didn’t just go up. It went right to where ongoing bear market crashes resume their crashes from: LOWER-HIGHS and the TOP-END of my Risk Ranges.
So, the NASDAQ could be down -7.0% from here and no one should be surprised.
Why? A: that’s the low-end of my Risk Range.
Context: post this +7% bear market rally in the NASDAQ (I’m old enough to remember the December 28, 2022 Cycle Low), it’s still in #Quad4 Crash Mode at -31.9% from The Mother of All Bubble Highs, don’t forget.
Can it rally higher, from here? A: absolutely. Am I positioning for that? A: Absolutely not.
Before the ultimate NASDAQ bottom heading into Q4 of 2002, the NASDAQ had a +12% rally (which Perma Bulls called a breakout) in Q1 of 2002. Then it had a +19% rally “off the lows” in Q3 of 2002, and then crashed to new lows again.
The problem for the many who are scared of missing the upside is that they either have no experience risk managing #Quad4 Bear Market Recessions and/or they do and didn’t risk manage them profitably!
So when you think about it, why wouldn’t they be afraid? My confidence is born out of both my mistakes, experience, and successes. I’ve never sky dived before. As a result, I’m outright petrified of the proverbial downside.
What else could keep crashing from here as year-over-year US GDP slows from +2% to ZERO? A: Oil.
Oil (WTI) could be down -9.1% from here and no one should be surprised.
Especially if you’re a QQQ bull, be as honest with me as I am with you. Why does that statement about Oil sound or “feel” different than my statement about the NASDAQ? The Russell 2000 could be down -7.1% from here and no surprises either.
Even though consensus is still Long Energy (we’re going to short more today). It’s because you’re probably not long Oil and/or that’s not in your US Equity “benchmark.”
But it’s still on the board as a major short with #Quad4 Demand collapsing like Growth and Cyclical company revs do.
Here’s another way to think about the crash. If I get Phase III of The Bear Market (started in DEC) wrong and have to sell my houses and Hedgeye… and apply to the Old Wall for a job… what would be my Top 5 Reason To Buy Stocks Now List?
- “The CPI slowed?” (it’s been slowing since June, and QQQ crashed to new Cycle Lows)
- “Everyone is bearish” (but, on average, HFs are positioned +45% Net Long, i.e. bullish)
- “VIX is going to 10” (but has no downside in my model below 19 and immediate-term upside to 25)
- “Earnings collapsing is priced in” (Old Wall NTM “estimates” are -3% from their ALL-TIME highs)
- AMZN and TSLA are “cheap” (lol)
You can laugh at all of this. You can cry. Or you can just stoically take a position. Once again, I’ve taken mine.
Be Not Afraid of your #process.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.55-4.04% (bullish)
UST 10yr Yield 3.42-3.95% (bullish)
UST 2yr Yield 4.15-4.51% (bullish)
High Yield (HYG) 72.48-76.45 (bearish)
SPX 3 (bearish)
NASDAQ 10,168-10,975 (bearish)
RUT 1 (bearish)
Tech (XLK) 119-130 (bearish)
Defense (ITA) 110-114 (bullish)
Utilities (XLU) 69.59-72.56 (bullish)
VIX 20.31-24.75 (bullish)
USD 102.71-106.31 (bullish)
Oil (WTI) 71.10-79.65 (bearish)
Gold 1 (bullish)
Silver 23.21-24.64 (bullish)
AMZN 79-97 (bearish)
TSLA 102-128 (bearish)
Bitcoin 16,301-18,199 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
