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POSITION: Long Energy (XLE), Short SP500 (SPY)

So, the HedgeyEconomics model says that as inflation expectations (prices) accelerate, growth slows sequentially. That’s the fundamental reason why I am shorting the SP500 (SPY) today. I think most late January and early February growth data slows.

On the other side of that, I’m long Bernanke’s Policy To Inflate (Energy –XLE). Not good for the country (real-growth), but it’s good for our P&L’s while it lasts. Perverse, but true.

Across all 3 durations in my risk management model, the quantitative view supports this Short Selling Opportunity:

  1. Immediate-term TRADE overbought = 1327
  2. Immediate-term TRADE support = 1317
  3. Long-term TAIL support = 1267

So, theoretically, I’m in this short position for at least 10 SP500 points. But the beauty of embracing uncertainty is that I can, at any time, throw the theoretical out the window. If 1317 breaks, then it’s a long way to 1267.

Right here, right now, this is the high probability move in my model, so I’m making it for the 1sttime in 2012.


Keith R. McCullough

Chief Executive Office

Short Selling Opportunity: SP500 Levels, Refreshed - SPX.02.01.12