“We cannot predict where it might be headed in the future, but we can describe how it came to be in the past.”
First, my entire team’s thoughts and prayers go out to all of the people affected by the horrible act at the Boston Marathon yesterday.
Without having inside information, predicting an external event like that is impossible. So is consistently predicting tops and bottoms in markets. They are processes, not points. It’s my job to A) contextualize the past so that B) I put us in the best position I can for the future.
Yesterday’s market collapse started with more of what has been happening for months – commodities collapsing. Combine intermediate-term TREND collapse with an immediate-term external event and you run out of time and space into the market’s close. That’s why describing where we came from to reach an intraday capitulation like that is critical this morning.
Back to the Global Macro Grind…
- SP500 was immediate-term TRADE overbought into last week’s all-time closing high of 1593 (so we made sales there)
- CRB Commodities Index was already in a Bearish Formation going into yesterday’s open (bearish TRADE/TREND/TAIL)
- Gold was not only in a Bearish Formation into Friday’s close, it started crashing pre-open yesterday too
Crashes (20% peak-to-trough declines) are very bad. We don’t buy those. Predicting The Past on that score is actually quite easy. Old Wall calls it “catching a falling knife” for a reason. Unless you have a catalyst, “cheap” gets a lot cheaper during a crash in price expectations.
But the thing about the past, on both things that matter to our process (Research and Risk Signals) is that you can see it today. That’s why our Research and Risk Management Models often get lucky in not being long something like Gold, Energy, or Brazil on days like yesterday. A multi-duration, multi-factor, Research and Risk Management #Process makes its own luck.
Describing how Bernanke’s Bubble (Commodities) is deflating is actually quite easy. You simply have to accept causality in terms of what made Bubble#3 (Greenspan/Bernanke Bubbles #1 and #2 were Tech and Housing) to begin with. If you reverse that causal factor’s intermediate-term TREND (Dollar Up instead of Debauched), you start describing why the Commodity/Gold Bubble is popping.
Reviewing 2013 YTD:
- Gold Miners (GDX) are down -37% YTD
- Gold is down -18% YTD
- Copper is down -11% YTD
Freeport McMoran (FCX) is a Gold and Copper expectations proxy (that’s why we’re short it); it’s down -14% YTD. And Brazil’s stock market (the best liquid proxy for a country commodity index) is down -13.1% YTD. For the month-to-date (APR) alone, Basic Materials (XLB) and Energy (XLE) stocks are down -4.8% and -5.7%, respectively.
This is why describing where we are matters. It’s the #CommodityDeflation that’s been driving US Consumption expectations higher all year long too. Q: So on the biggest down day for both US stocks and commodities of the year, why didn’t I buy US stocks yesterday? A: it’s the signal – and, above all else, I respect the market’s Risk Management Signal.
For US stocks, let’s go through why I’m at 10 LONGS, 9 SHORTS @Hedgeye instead of sending you another “Buyem” email into the close:
- SP500 broke my immediate-term TRADE line of 1557 support yesterday (that was new)
- US Equity Volatility (VIX) broke out above my immediate-term TRADE line of 14.07 resistance yesterday
- S&P Sector Studies flagged 5 of 9 core Sectors broken on our immediate-term TRADE duration
Those 3 things, combined with a nasty volume signal (+32% vs my TREND avg), predicts plenty enough for me to do 1 thing in a situation like that (a situation I have seen many times before) – to simply wait and watch.
I’m not happy to miss a big US stock market open, but if I do, I know why I made that decision. Having sold into an immediate-term TRADE overbought signal of 1593, I’m more than happy to wait and see if the bulls recapture 1557. If they can, with intermediate-term TREND support for the SP500 (1515) and TREND resistance for the VIX (18.69) intact, predicting the past gets easier again.
My Macro Team and I will be hosting our Q213 Global Macro Themes Call at 1PM EST today. Please ping for the details. Our intermediate-term TREND to long-term TAIL Research Views will be the focus of that call. That always helps us contextualize what was confusing about yesterday’s immediate-term duration risk too.
Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, EUR/USD, UST10yr Yield, VIX and the SP500 are now $1, $100.21-104.79, $82.04-83.14, 95.87-102.11, $1.28-1.31, 1.69-1.76%, 14.07-18.69, and 1, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
TODAY’S S&P 500 SET-UP – April 16, 2013
As we look at today's setup for the S&P 500, the range is 31 points or 0.99% downside to 1537 and 1.01% upside to 1568.
CREDIT/ECONOMIC MARKET LOOK:
- YIELD CURVE: 1.50 from 1.46
- VIX closed at 17.27 1 day percent change of 43.20%
MACRO DATA POINTS (Bloomberg Estimates):
- 7:45am: ICSC weekly sales
- 8am: Fed’s Dudley speaks in Staten Island, N.Y.
- 8:30am: Consumer Price Index M/m, March, est. 0.0% (prior 0.7%)
- 8:30am: CPI Ex Food & Energy M/m, March, est. 0.2% (prior 0.2%)
- 8:30am: Housing Starts, March, est. 930k (prior 917K)
- 8:30am: Housing Starts M/m, March, est. 1.4% (prior 0.8%)
- 8:30am: Building Permits, March, est. 943k (prior 939k)
- 8:30am: Building Permits M/m, March, est. 0.4% (prior 3.9%)
- 8:55am: Johnson/Redbook weekly sales
- 9am: Fed’s Evans speaks in Chicago
- 9am: ECB’s Draghi speaks before European Parliament
- 9:15am: Industrial Production, March, est. 0.2% (prior 0.8%)
- 9:15am: Capacity Utilization, March, est. 78.4% (prior 78.3%)
- 9:15am: Manuf (SIC) Production, March, est. 0.1% (prior 0.8%)
- 11:30am: U.S. to sell 4W bills
- 12pm: Fed’s Duke speaks in Washington
- 3pm: Fed’s Yellen speaks in Washington
- 3pm: BOE’s King speaks in Washington
- 4:30pm: API energy inventories
- 5pm: Fed’s Kocherlakota speaks in Minneapolis
- 5pm: BOE’s Haldane speaks in Washington
- IMF issues World Economic Outlook, growth projection
- House Energy and Commerce panel marks up approval bill for TransCanada Corp.’s Keystone XL pipeline, 2pm
- FDIC Chairman Martin Gruenberg, White House Council of Economic Advisors Chairman Alan Krueger, House Financial Svcs Cmte Chairman Jeb Hensarling, R-Texas, speak at American Bankers’ Assn Government Relations Summit, 7:30am
- Senate Judiciary panel hears from DOJ antitrust chief William Baer and FTC Chairwoman Edith Ramirez on enforcement of antitrust laws, 2:30p
- Senate Commerce and Transportation Cmte hears from FAA Administrator Michael Huerta, NTSB Chairwoman Deborah Hersman on FAA’s progress on safety initiatives and the investigation of Boeing 787, 2:30pm
- 3M IP lawyer Kevin Rhodes, former USPTO director Jonathan Dudas testify before Judiciary Cmte on abusive patent litigation, 2pm
- Boston explosions kill 3, injure scores at marathon’s finish
WHAT TO WATCH
- Housing starts in U.S. probably increased as progress sustained
- Gold selloff sparked by Cyprus-sale concern, Goldman says
- Putin calls for stimulus as minister sounds recession alarm
- IMF issues World Economic Outlook, growth projection
- Energy Future proposes opening salvo as KKR, TPG seek 15% stake
- Fairway Group seeks premium to supermarket rivals in U.S. IPO
- AMR files bankruptcy-exit plan hinged on merger with US Airways
- Gensler-Wheatley panel aims to end conflicts in benchmark rates
- Blackstone-backed Senrigan’s fund said to lose 13% on Sundance
- Twitter said to seek deals with Viacom, NBC to feature TV online
- Glencore-Xstrata deal said to win China regulator’s approval
- Facebook talking with Apple about new version of home software
- BlackRock (BLK) 6:30am, $3.57
- Wolverine World Wide (WWW) 6:30am, $0.55
- Comerica (CMA) 6:40am, $0.68
- Coca-Cola (KO) 7:30am, $0.44 - Preview
- Northern Trust (NTRS) 7:30am, $0.72
- US Bancorp (USB) 7:30am, $0.73
- Goldman Sachs Group (GS) 7:30am, $3.87 - Preview
- TD Ameritrade Holding (AMTD) 7:30am, $0.26
- Johnson & Johnson (JNJ) 7:45am, $1.39 - Preview
- WW Grainger (GWW) 8am, $2.75
- CSX (CSX) 4:01pm, $0.40
- Intel (INTC) 4:01pm, $0.41 - Preview
- Yahoo! (YHOO) 4:05pm, $0.25
- United Rentals (URI) 4:05pm, $0.48
- Cathay General Bancorp (CATY) 4:30pm, $0.31
- Fulton Financial (FULT) 4:30pm, $0.20
- Linear Technology (LLTC) 5pm, $0.43
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
- Gold Drop Splits Central Banks as Sri Lanka Sees Opportunity
- Silver Slump Splits Hedge Funds From Ingot Hoarders: Commodities
- Brent Crude Falls Below $100 a Barrel; WTI Lowest in Four Months
- Gold Gains as 14% Plunge Seen as Overdone, Central Banks May Buy
- Gold Slump Sparked by European Sale Concern, Goldman Sachs Says
- Japan Gold Retailer Sees Purchases Double Today as Price Tumbles
- Rebar Rises From Lowest in Four Months on Iron Ore Price, Demand
- Glencore’s $30 Billion Xstrata Deal Clears China Approval Hurdle
- Sugar Rebounds on Speculation Prices Fell Too Far; Coffee Gains
- Wheat Erases Decline, Climbs as Much as 0.3% to $7.0125 a Bushel
- Crude Supply Gains in Survey as Production Jumps: Energy Markets
- Record Ship Lines in Brazil Fail to Erase Capacity Glut: Freight
- Aluminum Rebound Seen as Opportunity to Sell: Technical Analysis
- Commodity Index Investments Fell $900 Million, Citigroup Says
The Hedgeye Macro Team
Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.
Takeaway: There is no real support for the price of gold to the prior all-time closing lows. We reiterate our bearish bias.
This morning’s price action in gold should not catch investors off guard. Specifically, the #1 catalyst we have been anchoring on throughout our bearish thesis on gold and gold mining stocks – i.e. sustained USD appreciation – has been in play since late 2011. Not coincidentally, the spot price of gold is down -26.8% from its all-time peak in AUG ’11 and is officially in a bear market. Moreover, we’ll walk through why this inverse relationship should continue to perpetuate further downside in gold and other commodity markets tomorrow on our 2Q13 Macro Themes call (email for the details).
To be crystal clear we do not see a buying opportunity in gold here. It’s very tough for us to agree with any valuation argument for non-economic assets like gold. And even if one did exist outside of the marketing materials of gold-only funds, valuation has never been and never will be catalyst for any market price in our opinion.
What is often a catalyst, however, is price itself. Gold spot prices remain in a Bearish Formation on our quantitative factoring. Functionally speaking, all three of our core durations of investor classes (immediate-term TRADEers, intermediate-term TREND followers and long-term TAIL investors) are reacting to the same price, volume and volatility signals in gold. More specifically, it would appear many of them are heading for the exits all at once – just as we have been warning throughout our intermittent updates on the shiny rock that is physical gold.
Given that gold is, in fact, just a shiny rock, we tend not to publish an overwhelming amount of research on it. To the extent you’re new to our views here, however, we’ve included hyperlinks to our recent updates below; email us if you’d like to discuss our bearish bias further.
Keith McCullough (CEO):
Gold Extends Bear-Market Plunge Below $1,400 on U.S. Recovery (via Bloomberg)
India Inflation Dips to 40-Month Low, Boosting Rate-Cut Case (via Bloomberg)
Jay Van Sciver (Industrials):
U.S. April Empire State Manufacturing Index (via Bloomberg)
Todd Jordan (GLL):
New rules for Macao gambling trips (via China Daily)
Chinese bird flu cases rise to 60 as the virus starts to spread around the nation (via Quartz)
Matthew Hedrick (Europe):
Europe to Face Washington Disbelief With Economic Claims (via Bloomberg)
Howard Penney (Restaurants):
Shanghai Chicken Served With Blood Shunned as Bird Flu Spreads (via Bloomberg)
the macro show
what smart investors watch to win
Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.