Dollar Down, China (and EM) Up

“Bottomless wonders spring from simple rules, which are repeated without end.”
-Benoit Mandelbrot

One of the simplest rules I can coach you through is understanding the unique relationship between what we call immediate-term TRADEs and intermediate-term TRENDs.

When something goes from Bearish on my TRADE and TREND durations to Bullish on both, we call that a Bearish to Bullish Phase Transition. They can be the most rewarding of longer-term Full Investing Cycle Asset Allocations.

An interesting (and developing) example of that is China’s Shanghai Composite Index. It was up another +0.7% overnight to +7.1% in the last month, making a new 3-month high. We recently went from Bearish to Bullish on Chinese Stocks via the FXI.

Back to the Global Macro Grind…

Welcome to another Macro Monday @Hedgeye where it’s time to review our measuring and mapping of markets within the context of our proprietary TRADE and TREND Signals.

Let’s start with the Global Currency Market:

1. US Dollar Index was down -1.1% last week = 3 straight down weeks and now signaling Bearish TRADE and TREND
2. EUR/USD was up another +1.2% last week after breaking out to Bullish on both our TRADE and TREND durations
3. Japanese Yen was up a big +2.1% last week after it too broke out to Bullish TRADE and TREND vs. USD
4. GBP/USD was up a big +1.8% as well and remains Bullish TRADE and TREND
5. Aussie Dollar was up +1.6% vs. USD last week, breaking out on our TRADE duration, but still Bearish TREND

You see, one of these things is not like the others (Aussie Dollar). But it’s like the Canadian Dollar Signal vs. USD = Bullish TRADE, but still Bearish TREND. Will these ultimately become Bullish TRADEs and TRENDs? A: I don’t know.

That’s the beauty of developing Fractal Patterns. You don’t have to “know.” You just have to observe.

Obviously Down Dollar can perpetuate plenty of Bullish Breakouts & Phase Transitions. Two of the biggest Asset Allocations you should be thinking about on that score are Commodities & Emerging Markets.

How did Commodities do last week:

1. CRB Commodities Index corrected a small -0.2% last week to +5.2% in the last 3 months and remains Bullish TREND
2. Oil (WTI) corrected -2.5% last week to +2.4% and +8.8% in the last 1 and 3 months, respectively = Bullish TREND
3. Copper was up another +0.8% for us last week after signaling a Bearish to Bullish Phase Transition
4. Lumber inflated another +8.1% last week to +11.8% and +16.0% in the last 1 and 3 months, respectively
5. Corn was up +3.4% last week to +1.5% and down -9.4% in the last 1 and 3 months, respectively

There it is again, measuring and mapping the 1 and 3-month relationships within the context of our TRADE and TREND Signals. It’s both consistent and disciplined #process.

Corn (which we’re still short via the CORN ETF) had what we call a Counter @Hedgeye TREND bounce. That’s often when a pervasively Bearish TREND simply bounces off the LRR (low-end of the Risk Range™ Signal).

Was that the beginning of our best #Quad4 Commodity Shorts undergoing a Phase Transition? A: I don’t know.

I’ll know WHEN I know. Here’s what we know on some of our Long China & EM (Emerging Markets) Asset Allocations:

1. China’s Shanghai Composite Index was +0.6% last week to +6.3% and +2.6% in the last 1 and 3 months
2. India’s BSE Sensex was up another +0.6% last week to +3.3% and +10.8% in the last 1 and 3 months
3. Philippines Stock Exchange was up +0.3% last week to +1.3% and +11.3% in the last 1 and 3 months

While we’re currently long all 3 of those EM Exposures, the only one that’s new is China. My #VASP (Volatility Adjusted Signaling Process) did a nice job getting us long Philippines (EPHE) when it did. I didn’t know I was going to get long that either!

Another thing the #VASP does for me is it gets me #OUT of Core Shorts WHEN they breakout to Bullish TREND. Remember when I was Short of SPAIN via EWP vs. my Core European Longs? I wasn’t short Spain last week:

A) Spain’s IBEX led European Gainers last week with a +2.4% move (to only +0.8% in the last 3 months)
B) Dutch Stocks (we’re Long EWN) were up another +0.9% last week to +10.2% in the last 3 months

Notice how deep into this Early Look I am without having to mention widely held US Equity Asset Allocations? Yep. That’s one of the best parts of the Go Anywhere Strategy – we get to go anywhere with our hard-earned capital!

We’re still long QQQ and it sucked compared to all of our other Global Equity Asset Allocations last week. It was down -1.2%, but don’t worry (yet). It’s still signaling Bullish on both our TRADE and TREND durations.

What didn’t suck last week was being Long of Bitcoin in IBIT terms. Bitcoin was up another +9.4% last week to +50.7% and +54.8% in the last 1 and 3 months, respectively. That’ll pay for some of The Fam’s bills! #GoAnywhere

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

UST 10yr Yield 4.02-4.35% (bearish)
UST 2yr Yield 4.44-4.73% (neutral)
SPX 5050-5174 (bullish)
NASDAQ 15,826-16,351 (bullish)
RUT 2023-2094 (bullish)
Tech (XLK) 203-212 (bullish)
Shanghai Comp 2 (bullish)
BSE Sensex (India) 72,702-74,675 (bullish)
DAX 17,515-17,907 (bullish)
VIX 12.78-15.43 (bullish)
USD 102.25-104.08 (bearish)
EUR/USD 1.076-1.097 (bullish)
USD/YEN 146.01-149.22 (bullish)
GBP/USD 1.263-1.289 (bullish)
CAD/USD 0.735-0.745 (neutral)
Oil (WTI) 77.05-79.96 (bullish)
Gold 2077-2215 (bullish)
Copper 3.81-3.96 (bullish)
Uranium (URA) 26.59-29.19 (neutral)
TSLA 164-193 (bearish)
NVDA 776-941 (bullish)
Bitcoin 63,398-72,499 (bullish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer