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POSITION: Long Energy (XLE)

I came into today with no US Equity exposure in terms of US Index or Sector ETFs. Coming out of The Bernank Tax last week, I sold everything US Equities in the Hedgeye Asset Allocation Model. Today, I’ll take that US Equity position back up from 0% to 6%, buying some inflation protection (Energy – XLE).

I know this isn’t (wasn’t) the way consensus Keynesians want you to think about it – but from a Growth and Inflation Expectations perspective, this is the way the market sees that it is. On the margin, inflation expectations just went up and growth expectations down. Thirty S&P handles matter.

In the chart below you can see this manifesting itself in terms of the always dreaded lower long-term highs. From 1363 in April of 2011 to the 1326 closing high last week (1333 intraday high on Thursday), this looks a lot like US policy – Japanese. As a result, the long-term SP500 chart looks like the Nikkei.

Across all 3 risk management durations in my model, here are the lines that matter to me most right now: 

  1. Immediate-term TRADE resistance = 1326
  2. Immediate-term TRADE support = 1297
  3. Long-term TAIL support = 1267 

In other words, I buy/cover here – but I’m taking my time. Lower-highs toward 1363 look firmly in place provided that the Policy To Inflate (slow growth) does.

The long-term TAIL holding tells me this is going to be an epic debate about the US Dollar and the policies that attempt to support or debauch it.


Keith R. McCullough
Chief Executive Officer

Gnarly: SP500 Levels, Refreshed - SPX