Editor's note: The following note was written by Hedgeye CEO Keith McCullough on July 01, 2014 at 11:57 in Macro. The Russell 2000 is down approximately 3% since. If you're a professional looking for a research edge click here for more information on how you can subscribe.
POSITION: 7 LONGS, 8 SHORTS
I #timestamped my most recent cover signal on the Russell 2000 on June 12th, so there’s been a lot of waiting and watching going on for the better part of the last 3 weeks. While not perfect, over the years I have had to teach myself to act on my signals, not my emotions.
Being bearish on US consumption growth (and the highest multiple growth stocks within the Russell that are tied to US demand) doesn’t have to be accepted at every time and price. Hedge fund consensus dog piled the short side of the market in May. I think June’s meltup had a lot to do with that.
Which brings us to today – Happy Canada Day! And a fresh SELL signal at 1208.
There are a few things to note about the 1208 line. Most importantly, it’s where you could have sold the Russell before its 10% draw-down. And maybe as importantly, now it’s easier to see all the reasons why you’d have sold growth in March (and bought inflation and slow-growth #YieldChasing).
For now, across our core risk management durations, here are the lines that matter to me most:
- Immediate-term TRADE overbought = 1208
- Intermediate-term TREND support = 1169
In other words, my risk management model considers a -3% correction from this level more than improbable. And as you think about how painful it might be to short the domestic equity style factor of the market right here and now, it probably felt the same way in March too.
From a fundamental research perspective, we still think #Q3Slowing will be the story Consensus Macro will have to re-adjust for from now until September. We’ll host our Q3 Macro Themes call on why next Friday.
Keith R. McCullough
Chief Executive Officer