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POSITION: Long Financials (XLF), Short Consumer Discretionary (XLY)

Short green, cover red. That’s what we do within a proactively predictable trading range. Intermediate-term tops are processes, not points.

To be clear, the Quantitative Risk Management view is quite often different than the Fundamental Research View. Over the course of my career, I have learned to rely on both. Fundamentally, I think consensus is coming our way on inflation slowing growth. Today’s Sector divergence (Energy up, Consumer down) speaks plainly to $122/barrel oil’s anticipated impact on real (inflation adjusted) GDP growth.

Back to the Quantitative Risk Management view, here are the lines in my model that matter most: 

  1. Immediate-term TRADE overbought = 1363
  2. Immediate-term TRADE support = 1353
  3. Intermediate-term TREND support = 1273 

If 1353 doesn’t hold, I think we go lower, faster. If 1353 holds, I think we bounce, again, on low volume, to another lower long-term high.

Scenarios, probabilities, and ranges. That’s what we do too. The process hasn’t changed, time and price have.


Keith R. McCullough
Chief Executive Officer

Covering SPY: SP500 Levels, Refreshed - spx.02.22.12