“I am intensely passionate about exploring the dark matter of the mind.”
-David Goggins
So am I. I’m especially passionate about the #behavioral component of my job. Differentiating Signal (of The Cycle) vs. Short-term Noise is going to battle test you again today. If one of the greatest scientists in American History (Feynman) thought turbulence was the “most important unsolved problem in science”, I’m thinking we all have more work to do.
What I love about Goggins is that he isn’t some lab rat or business school book theorist. He’s a practitioner. This man has pushed both his physical and mental limits to places that most of us will never go.
In the intro to his latest book, Never Finished, he goes on to explain that “most theories on performance and possibility are hatched in the controlled environment of a sterile laboratory and spread in university lecture halls. But I am not a theorist. I am a practitioner… this is bootcamp for your brain.” (pg 17)
Back to the Global Macro Grind…
Earlier this week I wrote about what a market practitioner should do in one of the more intense moments of market turbulence: a Gamma Squeeze. One of the most important things I wrote was that most “fundamentally” oriented players in The Game think that these super-short-term moves are economic signals. I’ve come to simply see it as trading and behavioral flow.
Define super-short-term: a ZERO days to expiration option, or 0DTE.
While we’ve seen a LOT throughout the last 13-14 months of The Mother of All Bubbles imploding, this bubble in super-short-term CALL Option Buying is right up there with chasing Meme Stocks after they ramp +69% in a day (BBBY was up another +50% yesterday).
Not only was it one of the biggest days we’ve seen in terms of notional capital spent on manipulating the tape (big buy orders force Options Dealers to SELL Volatility, suppressing it in the super-short-term), it was mostly in SPY (it used to be in TSLA!).
What did it mean “fundamentally” when they kept trying to resuscitate TSLA to lower-highs? A: Nothing. With US Consumption Demand collapsing into Deep #Quad4 this morning, TSLA is “cutting prices” on what they sell (other than stock), big time.
*TSLA has immediate-term downside in my Risk Range of -16% to $103 and Jay Van Sciver remains The Bear on the #BubbleCap.
What does one of the biggest days on the Most Active Options Board look like?
- 10 of the 11 Most Active Options in the US Market yesterday were JAN12 expiration SPY options!
- 1 of the 11 that wasn’t JAN12 was the JAN13 (today) $400 SPY line #0DTE
With the refreshed top-end of my Risk Range in SPX being 4006, isn’t that nice. This should get every chart chasing momentum monkey in the Federal League to see “4000” on the SP500 as a fundamental “signal” to … buy TSLA? Or was it LULU?
Dammit. Both of those widely held Consumer Discretionary (short XLY) names had to announce fundamental news. So they Go Down, as Futures Go Up (until those options expire, the VIX stops going down, and they don’t).
#1 asked question I get on this is: “so why, why, why… can’t it continue?”
- It can (anything can happen in markets in the super-short-term)
- It hasn’t once front-month VIX gets to around 19
So if you weren’t doing it into yesterday’s close (I signaled Buy US Equity Volatility for the 1st time in 2023 in Real-Time Coaching Alerts #timestamped), you should Buy Volatility Today.
There are obviously a LOT of ways you can position for a pop in short-term Vol. At the most basic level you can buy Puts or sell Calls. At the Portfolio Level, you can take down your Gross Long Exposure. You can reduce your Net Exposure. You can also pray for people who don’t.
Unlike most theorists, this market practitioner has both a fundamental research framework and risk management #process for this. Using an IF, IF, THEN decision making tree, my Rules-Based Execution Process says this:
- IF US Equity Volatility (VIX) gets to the low-end of the Risk Range in The Chop Bucket (VIX Regime Range of 19-29)…
- IF GROWTH, INFLATION, and PROFITS are still #SLOWING in #Quad4
- THEN you Buy Volatility and Short The Crap Out Anything that moved to the TOP-end of my Risk Ranges
In Real-Time Coaching Alerts I now have 4 LONGS and 28 SHORTS. In my Long/Short Book I’m now -12.1% Net Short.
Back to how Goggins doesn’t care what people think… why is that? It’s because they haven’t done what he’s done…
Since most Hedge Fund Managers have never made money running Net Short (and many aren’t even allowed to run Net Short), I’ll remind you that I’ve been here before. Might I “blow-up”? There’s always a chance of that happening.
And, believe me, the bulls want/need me to blowup (like they did in 2022). Maverick: “The end is inevitable, Mucker. Your kind is heading to extinction.” “Maybe so, Sir Old Wall Guy. But not today.”
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.50-4.01% (neutral)
UST 10yr Yield 3.42-3.93% (neutral)
UST 2yr Yield 4.10-4.52% (bullish)
High Yield (HYG) 72.88-76.81 (bearish)
SPX 3 (bearish)
NASDAQ 10,147-11,075 (bearish)
RUT 1 (bearish)
Tech (XLK) 119-131 (bearish)
Defense (ITA) 110-114 (bullish)
Utilities (XLU) 69.62-72.55 (bullish)
VIX 18.82-23.93 (bullish)
USD 101.95-106.16 (bullish)
USD/YEN 128.30-133.99 (bearish)
Oil (WTI) 71.15-79.59 (bearish)
Gold 1 (bullish)
Silver 23.24-24.60 (bullish)
TSLA 103-128 (bearish)
Bitcoin 16,196-18,960 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
