“I became a broken record on the algorithm.”
-Elon Musk
If you only have time to read 2 pages from Elon Musk, by Walter Isaacson, read pages 284-285 where he explains the rules of what he calls “The Algorithm.”
“At any given production meeting, whether at Tesla or SpaceX, there is a nontrivial chance that Musk will intone, like a mantra, what he calls the algorithm.”
I’m not giving my algorithms away this morning, but if you’d like his, buy the book. My algo says he needs the sales right now.
Back to the Global Macro Grind…
While we won’t give you the algos or AI embedded in the 2 new products we just launched (HedgAI and the Hedgeye Momentum Tracker), we do give you the outputs of the models.
If you don’t like a Quantamental rules-based, AI driven, risk management #process, this isn’t going to be for you.
If you have Old Wall friends who’d prefer to be a dinosaur who is neither Macro Aware nor respectful of The Machine’s daily FLOWS (which aren’t always “Fundamental”), tell them we’re playing against them, every day.
To be clear, these are new tools in my multi-duration, multi-factor risk management #process. They are not magic wands. I’ll never use them as 1-factor authentication to make a decision. To simplify the complex, they are new tools in the toolbox.
Let’s do some big examples that are embedded in the title of this note (Buy Gold, Tech, & Protection):
- Gold (GLD) is signaling buy right now because it’s down -0.4% at the LOW-end of my Risk Range™ Signal
- Tech (XLK) continues to signal Bullish @Hedgeye TREND this morning (see the Risk Range™ Signal product)
- Protection (as in Puts) are as cheap as they’ve been since July in Industrials (XLI) and Real Estate (XLRE)
Whatever you want/need to reconcile this with “fundamentally” is completely up to you. I spend a LOT more time risk managing THE FLOWS these days than trying to get people to subscribe to my intellectual thoughts.
I’m not an intellectual.
I am Mucker. I like rules. I like discipline. And I don’t just like my rules-based process for those reasons. I like them because they help me #GetBetter at The Game.
I make MANY more mistakes when I think about what could/should happen vs. what is happening.
So let’s do some examples on what’s happening in those big examples:
- Gold is signaling HIGHER-LOWS in my Risk Range™ Signal and a Bullish TREND in #Quad3
- Tech (XLK) is signaling a MUCH more volatile setup but is currently Bullish TREND in #Quad3
- Protection is something you should always be buying WHEN things tick towards the TOP ends of Ranges
Yes, Gold and Large Cap “Quality” Tech back-test as some of the best Asset Allocations in #Quad3. And, yes, our current Nowcast for the US economy is for #Quad3 in Q4 of 2023.
Real Estate (XLRE) is the 2nd worst place (next to Bank Stocks) to have your US Equity Sector Allocation in #Quad3.
See how I did that? Oh yes, you did. I went from SIGNAL to QUAD there. And THAT is precisely how the algorithms embedded in my rules-based and disciplined risk management #process works.
‘But, but… KM, you wrote and said that AAPL had a terrible quarter…
Yep, I said that and AAPL did. But who cares what I write and say? What you should care most about is what The Machine (and therefore I) does! AAPL still has -8.8% of immediate-term downside in my Risk Range™ Signal, but its RIGHT AT $181 TREND:
A) Therefore, if AAPL closes (and holds) above $181, its back to Bullish TREND like the Sector Style (XLK)
B) If it fails here and closes below $181, it’s still Bearish @Hedgeye TREND just like Elon’s TSLA still is
Can you get there? Mentally and emotionally, I mean? If I can, you can do this!
The “fundamentals” should eventually matter. And if you still want to lean on being purely fundamental (like my former self), the other 2 BIG components of the Mega Cap Tech (XLK) Factor Exposure have #accelerating revs.
Those 2, of course, are MSFT and NVDA. You can see what they are signaling in our Momentum Stock Tracker product and my Risk Range™ Signals this morning too.
The Question for AAPL, MSFT, and NVDA will be when do they go from signaling Bullish in #Quad3 to BEARISH TREND in #Quad4 (which we have hitting in Q1 of 2024)?
I’ll be a broken record on the answer to The Question too: WHEN the algorithm says so.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 4.50-5.00% (bullish)
UST 2yr Yield 4.83-5.11% (bullish)
High Yield (HYG) 71.09-74.40 (bearish)
SPX 4054-4394 (bearish)
NASDAQ 12,341-13,838 (neutral)
RUT 1 (bearish)
Tech (XLK) 159-177 (bullish)
Energy (XLE) 83.02-86.99 (bearish)
VIX 14.45-22.56 (bullish)
USD 104.79-107.10 (bullish)
Oil (WTI) 76.27-83.62 (bearish)
Gold 1 (bullish)
MSFT 338-365 (bullish)
AAPL 165-184 (neutral)
TSLA 192-229 (bearish)
NVDA 403-470 (bullish)
Bitcoin 34,118-35,718 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
