Correlation Risk: SP500 Levels, Refreshed

POSITION: Short SPY

It’s pretty clear that the institutional investing world’s consensus is cheering on another US Dollar Debauchery. Most people are still long The Inflation. Fundamentally, that’s not a good thing for the country - that’s just how part of the country gets paid.

What that is going to look like if it does in fact occur from this price level in the US Dollar Index is very confusing. Will that be the last blast up to lower-highs for commodities and equities? Will US equities make higher-highs on astonishingly low volume? Or will the ongoing crash in the US currency ultimately come home to roost for everything priced in US Dollars like it did in Q208 (and last week)?

Critical questions and critical lines in the SP500 continue develop as we push with a full head of steam out of the beloved (and cyclical) “earnings season” and into the hottest macro calendar of politicking (May/June deficit and debt ceiling debate) that we have seen in a very long time.

Across our 3 core risk management durations (TRADE, TREND, and TAIL), here are my lines: 

  1. TRADE (3 weeks or less): TRADE line support of 1334 continues to hold and should be given the bullish benefit of the doubt until it breaks.
  2. TREND (3 months or more): support remains at 1314 (down -3.6% from the YTD high of 1363) and should come into play if we see a TRADE line break of 1334.
  3. TAIL (3 years or less): lower-long-term highs (much like Japanese equities since the 1990s) will be the result of trying to devalue our way to cheap debt financed prosperity – current range of scenarios can get me as high as 1377 and nothing will have changed my long-term view of how all this ends. 

The Price Volatility driven by The Heavy Hand of government intervention isn’t for me. I’ve tightened up the net exposure of the Hedgeye Portfolio to 13 LONGS and 12 SHORTS on this morning’s strength in global market prices.

KM

Keith R. McCullough
Chief Executive Officer

Correlation Risk: SP500 Levels, Refreshed - 1