Broadening, But Not Where Consensus Went!

“The way you like to learn is what makes you comfortable, but it isn’t necessarily how you learn best.”
-Adam Grant

In a great #behavorial book I recently finished titled Hidden Potential, Grant goes on to suggest that “sometimes you even learn better in the mode that makes you the most uncomfortable because you have to work harder at it.”

If you’re new to risk managing Global Macro Markets, the modern Machine of Flows, Factor Exposures, etc., I always say get comfortable being uncomfortable. You have to work hard at fading your “feelings” and “fundamental” biases.

“One of the best examples I’ve seen is in comedy. When Steve Martin first started doing stand-up performances in the 1960s, he bombed over and over. The one approach to comedy that Steve had written off was writing – its wasn’t his style. He hated writing, because it didn’t come naturally to him.” It was “hard, so hard” he said. (pg 29)

Back to the Global Macro Grind…

Welcome to another Macro Monday @Hedgeye where we pride ourselves in doing, as Steve Magness’ book says “Doing Hard Things.”

If you think that incorporating The Machine’s Gamma Flips into my immediate-term TRADE Signal was easy, well… you’re a lot smarter than me!

Let’s start with the weekly review of what many Equity peeps don’t start with - Global Currencies:

1. US Dollar Index finally corrected (small -0.4%) last week for its 1^st down week in 8 (still Bullish TREND)
2. EUR/USD had a Counter @Hedgeye TREND Bounce (i.e. a SELL Signal) of +0.5% (still Bearish TREND)
3. Yen was down another -0.2% vs. USD and remains Bearish on both our TRADE and TREND durations
4. GBP/USD bounced back +0.7% last week, regaining Bullish TRADE support and right around TREND
5. Swedish Krone was +1.3% vs. USD and is a relatively new Bullish TRADE and TREND
6. South African Rand was down another -2.3% vs. USD last week and remains Bearish TRADE and TREND

Why do we do the real (differentiated) #process work on Sweden (EWD) and South Africa (EZA)?

A: our hard-earned capital isn’t relegated to a 1-dimensional set of 60/40 Portfolio and/or SPY Monkey options. We have earned the opportunity to deploy our capital wherever our Go Anywhere #process takes us.

Hard Core #HedgeyeNation Subscribers will recall that A) we used to be long of South African Equities via EZA (and we got you #out) and B) Swedish Stocks (EWD) are a relatively new European Equity Asset Allocation.

So we care about what their local currencies and interest rates are signaling!

How about Commodities last week?

1. CRB Commodities Index backed off @Hedgeye TREND resistance of 274 to close –0.7% at 270
2. Oil (WTI) corrected -2.5% last week but was able to hold A) higher lows and B) Bullish TREND support
3. Dr. Copper was +1.1% last week and is testing a Phase Transition (Bearish to Bullish TREND reversal)
4. Corn was down another -0.7% for us to -11.8% in the last 3-months and delivering alpha, Short Side
5. Cocoa inflated +17.1% (not a typo) to +53.2% in the last 3 months alone (i.e. our TREND duration)
6. Lean Hogs inflated another +2.3% last week to +21.4% in the last 3 months alone

Yep, evidently our Ag Shorts (CORN and WEAT = ETFs) can go straight down alongside Jay Van Sciver’s fundamental Deere (DE) Short while chocolate (cocoa) and bacon prices go vertical!

If you measure and map all of these signals every day, week, month… for 10-30 years… you’ll be doing the disciplined things that make you and your hard-earned capital Macro Aware.

Heck, of the Top 3 Commodities you could have been long in ETF terms, we were Long ALL 3 in Portfolio Solutions:

1. Shipping (BDRY) was +11.8% for us last week
2. Cannabis (MSOS) was +6.8% for us last week
3. Cannabis x2 (WEED) was +6.8% for us last week too

So we’re seeing a “Broadening Rally” alright…

But just not in the things that Old Wall consensus keeps trying to “make the call on” (like the Russell 2000 which was DOWN -0.8% last week despite our Signal moving from Bearish to Neutral).

For example, here were 3 US Sector Style Longs we have in our new Portfolio Solutions product:

1. MLPs (AMLP) up another +2.7% (vs. SPY +1.7% on the week)
2. Consumer Staples (XLP) up another +2.1% on the week
3. Healthcare (XLV) up another +1.5% for us on the week

I know, I know… we’re not long XLV. We’re long PINK and PJP (which have done better than XLV!).

And then there were the alternatives to being long our Global Equity and Commodity Asset Allocations (i.e. Bonds):

A) UST 2yr Yield was up another +2 basis points last week to +30 basis points in the last month alone!
B) UST 10yr Yield was down -3 basis points last week to +12 basis points in the last month

Yes, we’re long of the very Short-End of The Curve (FDRXX, TBIL, TFLO), but not long SHY, IEF, or TLT right now. Why? Because Bond Yields continue to signal Bullish on both our TRADE and TREND durations.

That makes fundamental sense as “US Rate Cuts” get priced out of consensus and the “Lower Rates Bets” underperform the aforementioned Asset Allocations that our process went with instead.

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

UST 10yr Yield 4.15-4.39% (bullish)
UST 2yr Yield 4.45-4.75% (bullish)
SPX 4 (bullish)
NASDAQ 15,575-16,141 (bullish)
RUT 1 (neutral)
Tech (XLK) 201-209 (bullish)
Insurance (IAK) 107.33-112.11 (bullish)
S&P Momentum (SPMO) 72.92-76.99 (bullish)
Healthcare (PINK) 29.15-30.78 (bullish)
BSE Sensex (India) 71,494-73,915 (bullish)
VIX 13.02-16.13 (bullish)
USD 103.46-104.80 (bullish)
EUR/USD 1.071-1.085 (bearish)
USD/YEN 149.27-151.20 (bullish)
GBP/USD 1.256-1.271 (neutral)
Oil (WTI) 75.58-79.06 (bullish)
Copper 3.65-3.92 (neutral)
Uranium (URA) 26.43-29.27 (bearish)
MSFT 400-419 (bullish)
AAPL 179-187 (bearish)
TSLA 180-204 (bearish)
NVDA 720-810 (bullish)
Bitcoin 50,504-52,716 (bullish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer