“Emotions are contagious. Helio used to say that you had to break the emotional wave before it broke on you.”
-Rickson Gracie

If you want to play The Game at the highest level, that’s one thing. Winning at the highest level requires capitalizing on the emotions of others. Especially for those that have no fading (trading) #process, emotional waves break them.

As The Great Gracie goes on to explain: “You can’t allow yourself to be swept away without knowing where it is going to take you. My Dad believed that if your mind and will are not strong, you’ll spend your entire life getting carried away by your desires and weaknesses.” -Breathe: A Life In Flow, pg 13

I encourage whoever wants to call me “short-term” or a dirty day trader or whatever to do so. I want the other players in The Game to not only underestimate me but to misunderstand my process. One of my mentors in life, The Great Tim Taylor, taught me this. “Mucker, you gotta give them some misinformation.”

Sell, Short, Breathe. - 02.23.2023 three pigs too late cartoon

Back to the Global Macro Grind…

Into the close yesterday, I did the opposite of what I did the day prior. Why? Who cares why? When matters more than why. Sell, Short, Breathe.

This morning’s Top 3 Things took me 13 minutes (I shouldn’t have had the 3rd glass of Brunello last night):

Fun day for a bear being bullish ended with me selling the US close…

  1. CURVE it’s a bone-chilling -81bps on 10s2s heading into Macro Tourist Day on PCE (that data won’t change either #Quad4 or our TREND Signals on the short-end of the Yield Curve). The Fed is going to keep 2s pinned high as the long-end of the curve makes Lower-Cycle Highs (can’t get it much > 4.00% for now and the 30yr Yield is trading tight with 10s now, which is also a Bearish Growth Signal)
  2. EARNINGS post NVDA AI Guy’s Storytelling session, NASDAQ Earnings #slowed to a fresh new CYCLE LOW last night with 86 of the 100 companies now having reported an aggregate Earnings Recession of -15.1% year-over-year (there isn’t a bull on the planet that called for that 6 never mind 14 months ago, and it’s not landing “soft”). These earnings should only get worse in Q1 and Q2…
  3. NASDAQ with 63% of the daily ramp in QQQ yesterday being NVDA… and the top-end of my Risk Range for NVDA = $240… with the NVDA weeklies all chasing the $240 Calls… that’s a fade from there. So is TSLA if the weeklies Options Bubble chase fails (they’ve failed for 2 weeks in a row and it had market impact); NFLX -4% yesterday was its worst relative day to QQQ in almost 1yr, teetering on TREND breakdown

If this ends up being the 3rd straight down week for SPY, no one should be surprised. Instead of yesterday’s SPY setup (post 4 straight down days and only -0.6% of downside in my Risk Range) now there’s -1.6% downside in the Range.

With 2.1% of immediate-term upside to a big LOWER-CYCLE-HIGH at 4095 SPX, I call today’s upside vs. downside a “fair fight.” I don’t target a Net Exposure, but I took my Long/Short Book’s Net Exposure down to +0.6% on green yesterday.

What’s a “fading process”? (hint: it’s not a chasing one)

A) It’s selling and shorting on green… and/or
B) Buying and covering on red

So easy to understand a dirty little Mucker (that’s with an M) can do it.

Easy to understand doesn’t mean easy to execute. We’re all wired differently. We all have our own risk management and investing styles. You need to do whatever makes you comfortable being uncomfortable. Breathe.

Back to those Top 3 Things:

1. CURVE for whoever is still running with the narrative that “the consumer is in good shape”, updated for yesterday’s reported economic data, that’s just false:

A) Q4 US GDP was revised LOWER mainly on Real Consumption Growth LOWER, taking the Real GDP slowdown to +0.9% from the +1.0% initially reported, slowing > 100bps (that’s a lot) from 1.94% y/y GDP in Q322
B) MBA US Mortgage Applications crashed to -41.3% year-over-year (y/y) to the LOWEST level in 28 years 

2. EARNINGS I’m not cherry picking NASDAQ earnings. I’ve been short the NASDAQ for almost 14 months. I wasn’t short SPY yesterday, but if you need/want to see “better than expected” earnings, you didn’t get that last night with 415 of the SP500’s company earnings #slowing to -3.2% year-over-year growth

3. NASDAQ I didn’t randomly pick the pin action in NVDA, NFLX, and TSLA (they have big index impact):

A) NVDA – has a #BubbleCap of $582 BILLION and also represented 41% of yesterday’s SPY ramp!
B) NFLX – has been the only #BubbleCap signaling Bullish TREND @Hedgeye (a change there would be bad)
C) TSLA – closed at $202 with a monster position in the $205 Weekly Calls expiring in t-minus 6.5 hours

In addition to the Weekly Call Option Bubble Chasing dynamic in both NVDA (the $240s) and TSLA (the $205s), you obviously have the 0DTE Bubble dynamic (0DTE = Zero Days to Expiration Options, i.e. t-minus 6.5 hours).

The Top 2 0DTE Options Lines on The Board yesterday (Most Actively traded US Options board) were the FEB23 SPY 402s and 401s (the Calls), so those already paid out and printed for whoever got long them for a day…

Today is a new day. There will be expirations. There may be blood.

The Question for you shouldn’t be a panicked “why KM, why did you sell after telling us you bought?” The Question for you remains: when you look at everything I look at, fully loaded with the waves and the flow, what do you see?

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

UST 30yr Yield 3.75-4.01% (bullish)
UST 10yr Yield 3.65-4.00% (bullish)
UST 2yr Yield 4.46-4.75% (bullish)
High Yield (HYG) 73.27-75.72 (bearish)            
SPX 3 (bearish)
NASDAQ 11,312-11,863 (bearish)
RUT 1 (bearish)
Tech (XLK) 133-141 (bearish)
Defense (ITA) 114-118 (bullish)
Shanghai Comp 3 (bullish)
VIX 19.26-24.47 (bullish)
USD 102.90-104.97 (bullish)
USD/YEN 131.90-135.97 (bullish)
Oil (WTI) 73.16-78.61 (bearish)
Gold 1 (bullish)
NFLX 317-349 (neutral)
TSLA 182-216 (bearish)
Bitcoin 20,893-25,106 (bearish) 

Best of luck out there today,

Keith R. McCullough
Chief Executive Officer

Sell, Short, Breathe. - FRICOD