“Expect the unexpected”

A quote that has been said by many. I was actually surprised that it went back to as far as Heracilitus “If you do not expect the unexpected, you will not recognize it when it arrives.”

But just like in the markets, once something is known by all, it is known by no one. Meaning, our advantage in the unexpected moments is the ability to recognize that the greats (in any area you follow) remain comfortable in these times and lean on discipline.

The unexpected every morning in this 0DTE (zero day to expiration) environment is not knowing what line is going to be pushed. Yesterday, it happened to be the SPY put on the 410 and 411 line. To little surprise the close on the SPY was 410.65.

What will today’s 0DTE line be, will there be any? Idk. What I do know is, yesterday’s VIX risk range was 17.69 – 21.05. The top end of that range remains in the chop bucket. So, what we have to do with these unexpected 0DTEs is understand they exist and what lines are being pushed for the day but also be able to move capital to take advantage of any mispricing getting generated. Continue to buy and sell our inventory without the emotions attached to a given ticker. There is always a trade to be made in a go anywhere strategy.

Expect the Unexpected - 02.08.2023 Fed bear landing cartoon

Back to the Global Macro Grind…

I’m also going to be presenting on the Macro Show this morning so I’m going to go back to my roots on this Early Look and stick to as much data as possible. I hope you like reading numbers.

The worst performing ETFs yesterday were: Natural Gas $UNG (-7.22%), $GERM (-5.33%), Turkey $TUR (-4.27%), Nat Gas Fund $UNL (-4.32%), Bitcoin Miners $WGMI (-4.1%), ARK Genomic $ARKG (-4.04%), and Gene Editing $XDNA (-3.91%). $WGMI is the highest volatility bitcoin related ETF, it was up +70% in the last month with 19 holdings that I will allow you to look up. Who gets you #out of $TUR? My question next time on The Macro Show with Keith will be, what is the trend line for $TUR.  Why not go both ways?

Looking at the Upside to Downside potential (yesterday’s ranges and today’s prices): SPX 2.1% : 4.1%, VIX 10.1% : 8.1%, TSLA 2.3% : 36.9%, Bitcoin 4% : 14.8%, AMZN 9.9% : 6.4%, DAX 1% : 2.8%, Shanghai 2.1%: 0.8%, Crude Oil 0.5% : 8.9%, Nat Gas 23% : 5.9%, Gold 4.5% : 1.2%, 2Y 25.8% : 7.4%, 10Y 2.9% : 7.4%.

SPX is giving a little more downside than upside while the VIX is sitting in the middle of the range. Tesla continues to show the most downside potential from here. Interestingly, the highest traded TSLA options on the board are the 10Feb23 Calls at 200 and 205. AMZN, Facebook, and Google are at the middle of their ranges. Shanghai is at the low end of the range. Crude oil is at the top end of the range in a bearish trend. Gold is near the low end of the range.

Looking at IVOL’s (they have been more volatile than usual these past two weeks):

  • IVOL Discount Callouts: South Korea $EWY, Turkey $TUR, Gasoline $UGA, 7-10yr Govt $IEF
  • IVOL Premium Callouts: UK $EWU, Singapore $EWS, New Zealand $ENZL, Saudi Arabia $KSA, Silver Miners $SIL, Defense $ITA, Homebuilders $XHB, Broker Dealers $IAI, Capital Markets $KCE, Banking $KBE, Small cap Healthcare $PSCH

With Crude Oil at the top end of the range, let’s look at the chart of the day to see which oil related countries are giving us an opportunity. Yesterday we received the Real Time Alert on $KWT, I’m also noticing $UAE. This is while both $KSA and $QAT have already made their moves.

Keep moving that inventory.

In terms of high-frequency data:

  • 11 of 11 sectors were down yesterday on slightly decelerating volume (-1% from 1M Ave) with $XLC leading the deceleration after being up the most YTD
  • Current 2-10 Spread -82 bps with the 1yr Forward 2-10 Spread at -35 bps
  • 2-10 Spreads remain inverted in 15 of 33 countries we track: US, Germany, UK, France, Canada, South Korea, Mexico, Netherlands, Sweden, Poland, Norway, Denmark, Singapore, New Zealand
  • High Yield OAS went up 8 bps DoD, The Move index decelerated on the down day
  • The market has added +0.5 rate hikes to the May 23 meeting, expecting 1.77 rate hikes (44.25). Said differently, a 77% chance of a 50 bps hike.
  • $QQQ Earnings are currently -15.3% YoY (54/100 companies reported). More notably is that expectations for earnings the next two quarters are for earnings to accelerate.
  • Europe $IEV earnings are currently -1.5% YoY (105/270 companies reported)
  • Accelerating YoY inflation in 9 of 22 countries who have reported January inflation numbers
    • Within that 9 are South Korea $EWY, Australia $EWA, Taiwan $EWT, and Philippines $EPHE. All of which are heavily linked to China. That reopening demand is having an impact on prices.
    • South Korea and Australia also remain in a tightening cycle through rates
  • 17 of 28 central bank have negative central bank total assets and there is currently no country that is growing total assets sequentially.
    • The countries with the largest tightening at the central bank level are Switzerland $EWL and Canada $EWC
  • UK Housing Price Balance (Jan) decelerates again to -47%
  • Indonesia $IDX Retail Sales (Dec) decelerate to +0.7% YoY
  • Japan $EWJ Machine Tool Orders (Jan) Decelerate to -9.7% YoY
  • Germany $EWG Inflation (Jan) accelerates to +8.7% YoY from +8.6% YoY. Also, up +1.0% MoM.
  • South Africa $EZA Mining Production (Dec) remains negative at -3.3% YoY. Although has accelerated sequentially for 6 months.
  • South Africa Manufacturing Production (Dec) -4.7% YoY from -1.1% YoY

Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets

UST 30yr Yield 3.51-3.73% (bearish)
UST 10yr Yield 3.34-3.68% (bearish)
UST 2yr Yield 4.12-4.57% (bullish)
High Yield (HYG) 75.07-77.19 (bearish)
SPX 3 (bearish)
NASDAQ 11,201-12,193 (bearish)
RUT 1 (bearish)
Tech (XLK) 131-145 (bearish)
Defense (ITA) 112-116 (bullish)
Gold Miners (GDX) 29.20-33.21 (bullish)
Shanghai Comp 3 (bullish)
Nikkei 27,105-27,786 (bearish)
VIX 17.66-20.94 (bullish)
USD 101.22-104.31 (bullish)
Oil (WTI) 72.64-80.48 (bearish)
Nat Gas 2.25-2.86 (bearish)
Gold 1 (bullish)
Copper 3.95-4.30 (bullish)
Silver 21.85-24.51 (bullish)
Bitcoin 20,257-23,880 (bearish)

Ryan Ricci

Expect the Unexpected - ThursCOD