“Yet there seemed to be some truth in the law of probability, according to which the chance of success is directly proportionate to the number of repetitions.”
– Kobo Abe
Good morning everyone and welcome! It’s been a while since I wrote one of these (10/12) and a lot has happened since you have entered my thoughts.
1. We launched HedgAI Signals for free (paid product to begin in mid-January). Give it a look before you have to pay for the same information.
2. I also created an X (FKA Twitter) account: @hedgeyeAI. Give it a follow.
The largest thing I have learned since October has come from my Twitter experience. It has become very evident that the public standard has become the expectation of 100% accuracy. This is interesting when I believe the adage goes something like this: “The only certain things in life are death and taxes” – thank you, Ben Franklin. If you don’t like Mr. Franklin, here is one from Albert Einstein: “The only thing we can be certain of in this life is that we can be certain of nothing.”
Yet why are we all so certain about so many things? If nothing is certain, yet we expect 100% certainty, aren’t we just on a torturous search for something that doesn’t exist? Aren’t we all flawed because, if any one person was right 100% of the time, would they be on this journey?
Or is the only thing that you know, that you don’t know … that everyone is on this earth on their endeavor, exploring different paths.
The funny thing is, you can say things like this, someone will nod and be like: “Yeah, you right, we don’t know.” Then turn around and tell you a statement of fact on another topic within two seconds. We all do it, we are just humans.
I bring this up because one of the new products we are launching that I’m at the center of is called HedgAI Signals. An A.I. product that looks to predict short-term moves (less than trade duration) in 50 different assets.
The second you say “A.I.” the base assumption is that it is 100% accurate and that it will cure world hunger. That is definitely not our claim. We claim that a multi-duration process can increase your probability of success. Here is a video of Keith and me explaining this probabilistic endeavor.
Our other claim is to get everyone looking at assets they may not have ever looked at before. But now, with HedgAI Signals, people will have sophisticated algorithms to add to an individual’s process.
Remember, over 50% of market volume is done through algorithms. Yet how many of us look at an unbiased algo as part of our daily process? I can tell you that algorithms and humans see things differently. Neither one is 100% accurate, but using together can increase your probabilities. There will be times the algo sees something the human doesn’t, and the human sees something the algo doesn’t. It’s a fluent process of accepting the fact that we don’t know anything with 100% certainty.
Before I get into the rest of this Early Look, which of the following has outperformed the other since the FOMC meeting on 12/13: Steel or Nvidia?
Back to the Global Macro Grind...
Today, let’s measure and map assets since the last Fed meeting on 12/13. Before this event, the market was implying the first rate cut to be in May 2024, now it has moved that rate cut up to March 2024. Also, the market implied three rate cuts by November 2024, now the expectation is for five. What the market implies can (and has) been wrong in the past, nevertheless it is a shift in expectations of what the economic climate will be.
Since the Fed Meeting: Russell +6.1%, CRB Index (commodity index) +3.5%, Hedgeye Momentum index +3.2% (MSFT, AAPL, AMZN, META, GOOGL, NFLX, TSLA, NVDA), Nasdaq +2.1%, S&P 500 +1.6%, Bitcoin +0.0%.
Now let's look at the returns from our Portfolio Solutions product (a rank of positions within Keith’s long-only account based on position size) since the meeting: Ethereum ETHE +8.7%, Columbia GXG +8.3%, Israel EIS +5.0%, Junior Gold Miners GDXJ +4.6%, Gold Miners GDX +4.2%, Physical Gold AAAU +2.7%, Gold GLD +2.6%, Momentum SPMO +2.5%, Uranium URA +2.4%, Deflation BNDD +2.2%, India INDA +1.8%, Brazil EWZ +1.8%, Philippines EPHE +1.8%, British Pound FXB +1.5%, Uranium Miners URNM +1.0%, MBS MTBA +0.4%, Bitcoin BITO +0.2%, 1-3yr Treasury SHY +0.1%, India Small Cap +0.1%, Insurance IAK -1.5%, Nuclear NLR -2.1%, Property & Casualty -2.6%, Utilities XLU -4.5%.
Fourteen of these (61%) outperformed or performed in line with the S&P 500. That’s with SHY being in there, a bond that shouldn’t be compared vs. the S&P 500. I can also hear Keith saying, “Position Sizing,” meaning your max vs min allocation to each position matters to avoid drawdowns.
But, with this back of the envelope math, I would say this is alpha.
Now let’s look at the performance of a basket of assets over a larger sample set (the assets in HedgAI Signals): Palladium +16.2%, TSLA +9.3%, Steel +9.1%, Silver +7.6%, Brent Crude +7.3%, META +6.9%, Platinum +6.8%, WTI Crude +6.6%, Russell +6.1%, GOOGL +5.9%, XRT +4.8%, Lithium +4.7%, Copper +4.4%, Nat Gas +4.4%, India +4.0%, XLE +3.6%, Wheat +3.3%, Hedgeye Momentum Index +3.2%, Amazon +3.0%, Gold +2.9%, NVDA +2.8%, XLB +2.6%, XLY +2.5%, CAD/USD +2.5%, NFLX +2.5%, Uranium +2.4%, EUR/USD +2.2%, XLI +2.1%, Nasdaq +2.1%, Japan +1.9%, S&P 500 +1.6%, GBP/USD +1.5%, XLF +1.1%, HYG +1.0%, XLK +0.9%, Bitcoin +0.0%, XLV -0.1%, MSFT -0.1%, Germany -0.1%, China -0.5%, Soybean -0.5%, XLP -0.6%, Corn -0.7%, USD/YEN -1.4%, US Dollar -2.1%, AAPL -2.4%, UST 2yr Yield -3.7%, XLU -4.5%, UST 30yr Yield -5.2%, UST 10yr Yield -5.2%, Sugar -6.2%. (ETFs for each on page 31 of this PDF.)
Ooookay, what’s your point?
Who is long: Palladium, TSLA, Steel, Silver, Brent Crude, Meta, Platinum, or WTI Crude?
Who is short: Sugar, Yields, XLU, AAPL, US dollar, USD/YEN?
The answer is probably no one, but do you have a process that is measuring and mapping each one of these daily in an unbiased fashion?
Now, the assets outperforming today will be different tomorrow. But drawing your attention across asset classes in order to identify opportunities can create a lot of alpha.
Let’s look at some the signals HedgAI has published: Buy Palladium on 12/12, Buy Steel on 12/12 and 12/15, Buy Platinum on 12/11, Buy NVDA on 12/22, Buy WTI Crude on 12/22, Sell US Dollar on 12/21, Sell Sugar on 12/19, Sell AAPL on 12/7.
Before the Fed meeting, HedgAI Signals had people looking at the metals space. Which is important because those have been the best places to be long since this meeting. It has also had people out of Sugar, the worst place to be since this meeting and has crashed -26% since 11/21 (HedgAI’s first signal on Sugar was a sell on 11/29, and our daily Portfolio Solutions re-rank product got people out on 11/27).
Another important way to use this product is with the Risk Ranges: HedgAI Signals had people out of AAPL on 12/7. AAPL was Bullish trend on that day. Also, bullish trend was MSFT and AMZN of which were “Wait and Watch” in HedgAI Signals on 12/8. Both of which outperformed AAPL.
It certainly hasn’t been all rainbows and puppy dogs. For example, the current META sell signal is from 12/19 and has not been correct. The current CAD/USD sell signal is from 12/20 also hasn’t been correct.
But the point of HedgAI Signals isn’t to be 100% correct. The point is to increase your probabilities over the long term over a large selection of asset classes. This will allow us to identify opportunities that the average market participant isn’t taking the time to look at. I would ask you this: What is the difference in making 9.1% in Steel vs making 2.8% in NVDA?
From today’s signals, here's what's peaking our interest over the HedgAI Signals, Trade, and Trend durations:
AAPL – HedgAI: signals buy, Trade: Upside potential of 3.0% vs downside of 1.7%, Trend: Bullish
Nat Gas – HedgAI: Signals Sell, Trade: Upside potential of 0.6% vs downside of 15%, Trend: Bearish
Like our planets, which align every ~100 years or so, a process doesn’t have to align every day. But when it does, you want to pay attention.
Today’s Chart of the Day shows a set up of this process used in order to identify moments in time where our probabilities align over multiple durations.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.94-4.25% (bearish)
UST 10yr Yield 3.78-4.11% (bearish)
UST 2yr Yield 4.18-4.55% (bearish)
High Yield (HYG) 75.88-78.00 (neutral)
SPX 4 (bullish)
NASDAQ 14,537-15,198 (bullish)
RUT 1 (bearish)
Tech (XLK) 188-194 (bullish)
Utilities (XLU) 61.64-65.01 (bullish)
VIX 11.90-14.71 (bearish)
USD 100.21-102.74 (bearish)
EUR/USD 1.091-1.113 (bullish)
Oil (WTI) 71.03-76.02 (bearish)
Gold 2020-2100 (bullish)
Uranium (URA) 28.22-30.42 (bullish)
NVDA 477-502 (bullish)
Bitcoin 42,102-44,448 (bullish)
Best of luck out there today,
Ryan Ricci
