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POSITIONS: Long Utilities (XLU), Short Industrials (XLI)

Our fundamental research call for Global Growth Slowing has not changed. Neither has our risk management process. Prices have.

For now, this correction in the SP500 from its YTD high is just that – a correction. A 25 point drop in the SP500 from its YTD closing high of 1419 = -1.8%. That’s only 50% of the YTD drop from the next closest major equity market in the world, so there is plenty of mean reversion risk that remains.

Across my core risk management durations (TRADE, TREND, and TAIL), here are the lines that matter to me most: 

  1. Immediate-term TRADE resistance (was support) = 1407
  2. Immediate-term TRADE support = 1392
  3. Intermediate-term TREND support = 1324 

In other words (and I said the same thing yesterday), if 1407 snaps, 1324 is in play over the intermediate-term TREND duration. That’s a big problem for the bulls because the smallest drawdown we saw from the Q1 YTD high in 2008, 2010, and 2011 was just north of 15%.

Every draw-down is different, but with this level of dependence on the Fed and easy money inflation policies, they have all certainly rhymed.


Keith R. McCullough
Chief Executive Officer

Short Covering Opportunity: SP500 Levels, Refreshed - SPX