“No one can stop the progress of Artificial Intelligence; it will inevitably be a central force in our future.”
-Max Tegmark
We talk a lot about the flows. Many market moves don’t have your traditional “why” behind them. You can have a poor GDP report, and the market can still go up just because the flows were set up to buy that day. This makes this game we call “the market” different from what many people are traditionally used to.
We have done a lot to show, explain, and front-run these flows which may create divergent moves from traditional fundamentals. We often use our partners at Tier1 Alpha for these to show current gamma and implied vol term structures (I detail today’s set up at the bottom). But there is another layer to this machine.
It’s the algos.
In the United States, Europe, and other Asian markets, “algo-trading” represents about 60-70% of total trading volume (and is rapidly growing). I’ll be the first to tell you, an algo and human see data very differently. It’s apples and oranges. When 60-70% of the machine is using algos, it becomes necessary to understand the algorithmic point of view on the current market.
That’s why we at Hedgeye have created HedgAI Signals. We hope you have enjoyed receiving these signals for free for 6 months, and we look forward to you subscribing to HedgAI Signals going forward. Please Click Here to subscribe.
Back to the Global Macro Grind…
HedgAI Signals is a pure algo view of the market. It is math and quantitative-based; we do not add any subjective data to these. Which is extremely rare for any A.I.-based program (we can get into that another day).
Our signals are Neural Networks (modern A.I. technology), which are trained with the sole purpose of making money over the next 1-8 trading days. This adds a new duration to a process (which I will outline below with the Chart of the Day).
The next important feature is that each asset has its own unique algorithm (inputs, training process, model structure, etc). Each prediction generated by the algorithms is made as a siloed prediction. It is like having 15 different analysts whose only job is to predict one asset. You can’t do that with humans because it’s expensive. But you can do that with Algorithms.
I will also say it is extremely rare to have Algos set up this way. That is because it is not very scalable; companies want you to build one Algo that predicts 500 different assets. We don’t like that. Because every asset is just inventory and is entirely different from the next. You wouldn’t model Uranium the same way that you would model Nvidia, so why would you have your algos the same way? The reason most companies have general A.I. is because making algos the way we did requires multitudes of additional work. But welcome to Hedgeye, where we will outwork you.
Lastly on our process, we are publishing in HedgAI Signals our best 15 algos. We have thousands of algos behind the scenes that we monitor but we want to give you the best so that you can confidently make your next trade. We are committed to making more algos, as we do, we will look at adding more to this product but will always only put the best here.
How do you use these? That’s pretty simple. We will post once in the morning. The algos will either put on new positions or be in "Wait and Watch." We will then run the algos again the next morning and the algos will either close current positions or open new ones. I have ZERO control over what the outputs are. We don’t ask "why" with HedgAI. It is simply an algo’s view of the current market, which you can pair with your human views.
Here are today’s positions of HedgAI. These positions change very quickly and often, so I can guarantee that tomorrow’s positions will be different from today’s.
Open positions were opened on the following dates with the following unrealized return: XLP (+0.4%) 4/12, CAD/USD (+0.8%) 4/10, Nasdaq 4/15, Tesla 4/16, Meta 4/16
The next piece that we offer is performance metrics for each algo. These metrics date back to when we began publishing these signals for free. The "Buy Only" batting average across all assets is 78%. The "Sell Only" batting average across all assets is 56%. There are a lot of reasons that the Buys are better than the Sells (I’ll explain another time), but what is important is that you have this data daily for each individual asset. This is where compliance would like me to say: past performance doesn’t guarantee future performance, and to check out the disclaimer at the bottom of the PDF below. Also, if you don’t know what these metrics are, we provide a detailed explanation at the bottom of the PDF.
Now, how can we use this data with the Hedgeye process? Simple. We create the Chart of the Day, where we combine different durations. As different durations agree with each other, your probabilities of success increase. This creates what I like to call "Stars Aligning." It is not every day that you get a solar eclipse, but when you do, the whole world pays attention. Same idea here, it’s not every day different durations agree, but when they do, we pay attention.
I love simple things; all we are trying to do is find times that the colors match. For subs on Friday they saw sells on XLP and CAD/USD (before the CPI report). Monday they saw Nasdaq add a sell. With everything else being a “Wait and Watch”. Today we are getting more active with META and TSLA adding buys. XLP, CADUSD, and Nasdaq are all at the low end of their Risk Ranges, those trades have passed and our subs have already profited. TSLA adding a buy within a bearish trend, I look at more as a cover a short position as personally I don’t buy bearish trends. But META adding a buy, at the low end of the Risk Range, and Bullish trend is where my attention is today.
Our pipeline is simple. Create as many algos that work as possible. We are looking to expand the number of Algos across Global Macro. We are also looking at creating intra-day predictions. I move quickly because I have many remote computers doing a lot of work for me 24/7... so stay tuned.
Click Here to view today’s PDF output. At the bottom is a written description of the entire product as well as a disclaimer.
Update on today’s vol set up:
- Short dated vol is up at 23 today and 21 by the end of the week. 20.5 by next week. That remains very high meaning we can continue to expect high volatility this week. Dealers also remain in negative Gamma perpetuating this volatility.
- On the SPX there is a large options expiration on 4/19 with a large amount of put buying on the 5,000 line. With the low end of today’s risk range at 5,025, this is not out of the question.
- For Bitcoin’s weekly options expiration there is a large amount of put buying on the 60k line. The low end of today’s range is 60,730, making 60k more likely than it was yesterday.
- #HFL (higher for longer) remains the name of the game on both inflation and rates. Powell put himself in a sticky situation here. But continue to be patient finding rates and inflation plays.
- High Yield HYG goes bearish trend today. Nasdaq goes neutral trend.
Here are some ETFs that overlap with our HedgAI coverage (performance can vary from ETF vs the ticker our algo is trained to predict found on pg 15 of the PDF). Nasdaq 100: QQQ, Steel: SLX, Uranium: URA, Sugar: CANE, US Dollar To Yen Cross: FXY, Canadian Dollar To US Dollar Cross: FXC.
Here is a list of videos to also help you understand HedgAI Signals
- Keith explaining how to use a multi duration process to increase probabilities (12/08/23)
- Explanation on our vision for HedgAI Signals (4/12/2024)
- Explanation on the importance of AI in Investing (12/17/2024)
- Conversation between Daryl and I describing the ins and outs of these signals (10/11/23)
I look forward to seeing you subscribe.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 4.46-4.77% (bullish)
UST 10yr Yield 4.27-4.68% (bullish)
UST 2yr Yield 4.65-5.05% (bullish)
High Yield (HYG) 75.65-76.87 (bearish)
Investment Grade (LQD) 104.55-107.12 (bearish)
SPX 5025-5210 (bullish)
NASDAQ 15,801-16,429 (neutral)
RUT 1 (bearish)
Tech (XLK) 200-208 (neutral)
Insurance (IAK) 108.74-118.45 (bullish)
S&P Momentum (SPMO) 77.90-81.05 (bullish)
Healthcare (PINK) 28.60-30.11 (neutral)
Shanghai Comp 2 (bullish)
Nikkei 38,201-39,856 (bullish)
BSE Sensex (India) 72,750-75,101 (bullish)
DAX 17,501-18,413 (bullish)
VIX 14.26-20.28 (bullish)
USD 104.34-106.96 (bullish)
Oil (WTI) 84.28-87.27 (bullish)
Gold 2 (bullish)
Copper 4.12-4.41 (bullish)
Silver (SLV) 26.28-29.11 (bullish)
NVDA 840-909 (bullish)
Bitcoin 60,730-71,613 (bullish)
Best of luck out there,
Ryan Ricci
