Small Caps Are Getting Smacked Around Again? No Worries! Right?

Editor's note: This is an excerpt from Hedgeye morning research. Click here for more information on how you can subscribe.


The Russell 2000 is down almost -2% in the last 5 days, but the world’s consensus hedge (SPY) isn’t down (yet), so no worries.




Small Caps Are Getting Smacked Around Again? No Worries! Right? - ben


From both a liquidity and volume perspective, this is simply a rewind of the movie you saw in late September (decelerating volume on UP days for SPX). For the record, total U.S. Equity market volume was down -26% vs. its 1-month average yesterday.


In other words, tread carefully. Mr. Market may be about to high-five your face.

#Bubbles: S&P Levels, Refreshed



One of the main reasons why I haven’t written you a “SELL (SPY) Levels” note in a while is that I wasn’t getting an immediate-term TRADE overbought signal. Now I am. Timing is part of the #process.


Rather than rehash my fundamental view on why the Russell 2000 (IWM) is #bubble (that already saw its 1st phase of popping during its July-Oct 15% draw-down), I think this is as good a spot as any to call the SP500 a #bubble.


#Bubble? Sure. What better spot to call it what it is, other than the all-time high?


To put the immediate-term short-covering capitulation in context, here are the levels that matter to me most:


  1. Immediate-term TRADE overbought = 2050
  2. Immediate-term TRADE support = 2001
  3. Intermediate-term TREND support = 1975


#Bubbles: S&P Levels, Refreshed - SPX Levels refreshed


In other words, whether you are a short or intermediate-term investor, there’s anywhere from -2.4-3.7% mean-reversion downside from 2050. Memories of the -10% draw-down (SEP to OCT) are short, so I’m thinking -3% could happen slowly, then all at once.


Both Volume (decelerating on UP days) and Volatility signals (my TREND signal for VIX remains bullish) within the US Equity market are more glaring now than they were at the end of September. My mistake then was not shorting SPY, and just staying with IWM.


To put this epic volume signal in perspective, at the all-time closing high of 2041 (SPX) yesterday, Total US Equity Market Volume crashed (down -26% and -46%, respectively, versus its 1-month and YTD averages).


To be balanced, if you think the word #bubble is too aggressive, just call this performance chasing level of the SP500 a Liquidity Trap.



Keith's Macro Notebook 11/18: Yen | Europe | Russell 2000

Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.52%
  • SHORT SIGNALS 78.67%

EVENT: BABA: Risks & Timing, What Others Aren’t Telling You

Takeaway: We're hosting a call Friday, November 21st at 11:00am EST discussing our bearish long-term view on BABA, and timing the short opportunity.

EVENT:  BABA: Risks & Timing, What Others Aren’t Telling You - HE IM baba

We will be hosting a call outlining our long-term BEARISH view on Alibaba Group Holdings.  BABA is too large to control its own destiny, leaving it hostage to the China growth story and creating a set of challenges for its business model.


Moderated by Hedgeye's CEO Keith McCullough, we'll integrate a PMs perspective on risk and timing.  


Join us for our call Friday, November 21st at 11:00am EST.




  • China Can't Grow Fast Enough: Top-down analysis of the key factors driving E-Commerce in China.
  • Growth Will Come at a Price: How the China growth story will pressure BABA's Business Model.
  • Timing the Short: Model Projections and the Key Metrics we're tracking to monitor our thesis.



Ping for more information.

COMPLIMENTARY VIDEO | Hedgeye's Morning Macro Call with CEO Keith McCullough 11/18/14

We are pleased to present this complimentary peek behind-the-macro-scenes of Hedgeye's daily Morning Macro Call for institutional subscribers. 


While you're at it... 


Click here to subscribe to HedgeyeTV on YouTube. It takes one second (and it's free!). Don't miss any of our acclaimed content including our analysts' latest ideas and CEO Keith McCullough's 'Real Conversations' interviews with leading market and economic practitioners.



Takeaway: November takes a turn for the worse portending a December disaster. Hedgeye forward estimates remain well below Street

Analysis of November trends/takeaways and an update to our monthly forecast



Please see our note:

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