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This note was originally published at 8am on March 27, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Mr. Dalio admits to being wrong roughly a third of the time…”

-The Economist, March 2012

At least there’s someone out there who doesn’t proclaim to nail it on every Global Macro market move. Bridgewater’s Ray Dalio is, incidentally, one of the only major hedge fund managers to not blow up in a down tape going back to the 2007 turn.

There are, of course, different definitions of being right and wrong in markets. All you need to do is change the duration of your prospective holding and/or risk management period, and you are all set.

While the Fed Chairman’s Policy to Debauch The Dollar and Inflate provided for a fascinating time to watch another no volume rally in US stocks yesterday, my process also reminded me that it was a time to sell.

Back to the Global Macro Grind

I came into the day with 14 LONG positions in the Hedgeye Portfolio and ended the day with 10. I came into the day with 13 SHORT positions and ended the day with 14. #TimeStamped - that’s just what I did. It doesn’t mean that all 27 of my LONG/SHORT positions were right or wrong. I’m simply showing you what I do in real-time. Most people won’t.

Per the same article in The Economist, Dalio also “attributes a big part of his success to managing the risk of bad calls.” That’s something that Steve Cohen says too. If you’ve successfully managed risk with live ammo across all of the big bull and bear moves since 2007, you’ll recall that being perma-anything has not worked.

Maybe this time it’s different. Maybe it’s not.

Bearish Factors in my notebook this morning:

  1. SP500 = immediate-term TRADE overbought at 1417
  2. SP500 immediate-term downside versus upside (3 weeks or less) = 10:1
  3. Financials (XLF) and Tech (XLK) are 3.7 and 3.9 standard deviations overbought on my TREND duration
  4. US Equity Volatility (VIX) at 14 anything = the most obvious clean cut sell signal since Q1 2008
  5. US Equity Volumes are the most bearish I have ever seen (yesterday’s volume = -17% vs my TREND avg!)
  6. US Dollar Down -0.62% yesterday on Ben Bernanke’s Policy To Inflate will only slow growth faster
  7. US Treasury Bond Yields (10yr) stopped going up at 2.31% and 2.47% TRADE and TAIL resistance, respectively
  8. China Slowing had the Shanghai Composite down -0.2% overnight and the Hang Seng remains bearish TRADE
  9. India’s stock market had a no volume bounce to a lower-high and remains bearish TRADE (Growth Slowing)
  10. Spain’s stock market (-3.5% YTD) remains in a Bearish Formation as Spanish bond yields won’t go down
  11. Greek stocks stopped going up on FEB 13thand are down -8% since
  12. Oil prices remain in a Bullish Formation with immediate-term upside on Brent Oil at $126.92/barrel
  13. Copper remains below its long-term TAIL of 4.03% resistance (and all-time bubble high)
  14. US Housing (New and Pending Home sales) numbers are suggesting a potential Triple Dip
  15. Japanese Yen continues to signal we are crossing the Rubicon of the mother of all Sovereign Debt Crises

Bullish Factors in my notebook this morning:

  1. SP500 remains in a Bullish Formation provided that 1402 holds (intermediate-term TREND support = 1312)
  2. S&P Equity Sector Model has 8 of 9 Sector ETFs bullish TRADE and TREND (Energy is the only bear – XLE)
  3. SP500 is up +12.6% YTD, perpetuating the performance chase into month and quarter end (Friday)
  4. SP500 is finally developing less bearish Correlation Risk to the US Dollar (30-day correlation = +0.27%)
  5. Japanese stocks, closed up +2.4% overnight (like European stocks did in Q1 of 2011, they love FX devaluation)
  6. South Korea’s KOSPI is holding onto its Bullish Formation with critical TRADE support of 2,012 intact
  7. Germany’s DAX remains on fire at +20.2% YTD (Bullish Formation)
  8. Russia’s Trading System Index loves the fuel of the almighty Petro-Dollar (down dollar, up oil) = RTSI +24.5% YTD
  9. Brazil’s Bovespa remains bullish intermediate-term TREND (we sold our long position yesterday at overbought)
  10. Canada’s TSX remains in a Bullish Formation (we sold that too yesterday at immediate-term TRADE overbought)
  11. Gold prices didn’t snap long-term TAIL support of $1652/oz yet
  12. US Treasury Yields on the short-end of the curve are moving into a Bullish Formation with TAIL support = 0.35% (2yr)
  13. US Treasury Curve Yield Spread (10s minus 2s) is +3bps wider day-over-day at +192bps wide
  14. Euro is back above intermediate-term TREND support of $1.32 vs USD (bullish for European purchasing power)
  15. President Obama’s probabilities of re-election just hit a fresh new high in our Election Indicator of 62.3%

In other words, if you open your process to what’s going on in the entire world, there’s a lot going on out there.

Every investor has their own unique investment time horizon and appetite for draw-down risk. You can make your call on what to do next. That’s is the beauty of this game. It’s always changing and offering you another chance to do the same.

Yesterday is over. Risk is managed proactively for tomorrow. Inasmuch as selling low in 2009 was, buying high can be a “bad call” too. So just keep that in mind at VIX 14 if you think buying in Q1 of 2012 is going to be different this time.

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, Japanese Yen (vs USD), and the SP500 are now $1652-1704, $124.45-126.92, $78.83-79.38, $82.41-84.12, and 1402-1417, respectively.

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer

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