This note was originally published at 8am on April 02, 2013 for Hedgeye subscribers.
“Do not suffer your good nature to say yes when you ought to say no.”
Raising a firm is something I struggle with sometimes. I endemically trust people who are on my team. I want to believe they’ll succeed. With time, I’m learning that saying yes to everyone’s individual wants isn’t the way to accomplish the team’s goals.
Wants versus needs – it’s an interesting discussion I often have with myself. Do I need to hire? Do I want to grow? Do I need to get bearish? Do I want to be right? Why not just let the market tell me what to do?
On that score, the aforementioned quote inspired me last night. It comes from Chapter 1, “The Early Years”, of Volcker – The Triumph of Persistence. It hung prominently in Paul Volcker’s father’s office, and was “burrowed into young Paul’s brain” (page 15).
Back to the Global Macro Grind…
From a behavioral perspective, yesterday was one of the many fascinating market days of 2013:
- On the open, the SP500 tested another fresh all-time high at 1570
- Into the close, the SP500 tested (and held) our immediate-term TRADE line of 1556 support
Did you chase the open (buy high)? Did you sell the close (sell low)? Or at both psychological pain points in the US equity market day did you Just Say No?
Selling on green and buying on red is a lot harder than it sounds. Sometimes I have to physically force myself to do the opposite of what I feel like I should do (I get up from my desk and go for a walk). For me at least, feeling anything about macro market moves is usually my first mistake. The second is not trusting my signal.
So, just say no buds – it’s ok, really (so is talking to yourself). Oh, and don’t forget to #timestamp all of those decisions so that you are accountable to every time your process answers, as my 3 yr old daughter asks, “yes or no?” Buy or sell?
The decisions I made yesterday were as follows:
- Sold 3 LONG positions on the open (OZM, FDX, and HOLX)
- Shorted 1 core short idea at 10:18AM (Basic Materials, XLB)
- Bought/Covered positions between 12:50PM and the close (CJES, EWM, IWM)
Now some will call that whatever they want to call that. I’m just calling it out as what I did. Whenever I do something, I consider the 2 big parts of our process (the Research View and the Risk Management Signal):
- Research View: on the margin, the ISM report released at 10AM EST was bearish (that’s why I sold FDX and shorted XLB)
- Quantitative Signal: both the SP500 and Russell2000 held immediate-term TRADE support (that’s why I bought IWM)
Within a 15 point (-0.7%) intraday move on a no-volume day (actually a big move considering how few and far between down moves in US stocks have been), you might just say that I said no to fear – and worked the top and bottom ends of my risk range, both ways.
Some call it trading. Others call it timing. Many call both trading and timing bad things – and for good reason. If I didn’t have a repeatable process to signal a probable risk range, I wouldn’t be risk managing intraday moves either.
No matter what I said yes or no to yesterday, now I have to deal with today:
- ASIA: mixed as Equity Indexes continues to make higher-lows and higher-highs; Yen overbought; Nikkei oversold.
- EUROPE: strong moves from important support levels for both the DAX and the FTSE on ok PMI data
- USA: US Dollar remains Strong Like Bull; 10yr Yield at low-end of our risk range; US Equity futures up
So, we’ll start the day with 13 LONGS and 8 SHORTS @Hedgeye. Two of those 8 SHORTS are Treasuries (TLT) and the Yen (FXY). And the question I have in my mind is why wasn’t I more aggressive getting longer?
It’s in my nature (no matter how bullish I am on US growth or stocks) to be relatively conservative in my net long positioning. But Mr Market doesn’t care about my nature. So I have to work on finding a way to just say no more to my natural instincts.
Our immediate-term Risk Ranges for Gold, Oil, US Dollar, USD/YEN, UST 10yr Yield, VIX, Russell2000, and the SP500 are now $1592-1605, $108.95-111.44, $82.53-83.38, 93.07-96.12, 1.83-1.94%, 12.14-14.34, 935-955, and 1557-1572, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer