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Keith's Daily Trading Ranges [Unlocked]

This is a complimentary look at Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers every weekday morning by CEO Keith McCullough. It was originally published April 09, 2015 at 08:07. Click link above to subscribe.

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BULLISH TRENDS

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BEARISH TRENDS

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Keith's Macro Notebook 4/9: Japan | Commodities | Gold

 

Hedgeye Macro Analyst Ben Ryan shares the top three things in CEO Keith McCullough's macro notebook this morning.


Japan, CRB, Gold

Client Talking Points

Japan

With the Dollar Up and the Yen Down, the Nikkei rips to new 7 year highs (+0.8% overnight to +14.9% YTD vs SPX +1.1% YTD); the caveat here is that my FX risk ranges are tightening, so up here we’ll register an overbought signal in Japanese stocks .

Commodities

Dollar Up -> CRB Commodities Index has a big -2.5% down day (led by Oil’s -5.6% daily decline); while it’s tempting to get off the #Deflation theme, there’s no fundamental research reason to do so yet.

Gold

While it appeared to enjoy the 3 week Dollar Down, Rates Down combo move (you need those 2 things happening at the same time for Gold to really work), now you have USD Up and Rates trading in a lower, but tighter range – and Gold doesn’t enjoy that, -0.5% to $1196/oz and still signaling bearish TREND @Hedgeye.

Asset Allocation

CASH 34% US EQUITIES 13%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 30% INTL CURRENCIES 8%

Top Long Ideas

Company Ticker Sector Duration
MTW

Manitowoc (MTW) is splitting the business into two companies. Given the valuation differential between the sum-of-the-parts and the current enterprise value of the company, the break-up should be a substantial positive. Recent nonresidential and nonbuilding construction data remains firm for 2015, which suggests that MTW’s crane sales should see a pickup in the first half of the year. The Architecture Billings Index (a survey of architects) typically leads nonresidential and residential construction spending by approximately 9-12 months. More importantly, the ABI Index leads MTW Crane Orders by 2 quarters.

ITB

iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call, U.S. #HousingAccelerating remains 1 of the Top 3 Global Macro Themes in the Hedgeye Institutional Themes deck right now. Builder Confidence retreated for a 3rd consecutive month in March and New Home Starts in February saw their biggest month-over-month decline since January 2007.  We think the underlying reality is more sanguine with the preponderance of the weakness in the reported February data largely attributable to weather.  

 

                                                  While labor supply constraints may serve as a drag to builder confidence, presumably it is rising demand trends that are driving tighter conditions in the resi employment market.  All else equal, we’d view improving demand as a net positive.  On the New Construction side, while the sharp drop in Housing Starts captured most of the headlines, we believe the real story was in the 3% gain in permits. We'd expect to see a big rebound in the next two months in housing starts as the data plays catch-up to the thaw.

TLT

Low-volatility Long Bonds (TLT) have plenty of room to run. Late-Cycle Economic Indicators are still deteriorating on a TRENDING Basis (Manufacturing, CapEX, inflation) while consumption driven numbers have improved. Most of the #Deflation trades bounced to something less-than-terrible (both absolute and relative) for 2015, whereas the real alpha trending in macro markets continues to play to the lower-rates-for-longer camp’s advantage.

Three for the Road

TWEET OF THE DAY

Looking forward to being LIVE w/ Maria @MariaBartiromo for the hour at 9AM EST @OpeningBellFBN 

@KeithMcCullough

QUOTE OF THE DAY

“While you’re sitting there thinking about it someone else is out there doing it.”

         -Rodger Halston

STAT OF THE DAY

Dwayne "The Rock" Johnson eats about 821 pounds of Cod per year.


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CHART OF THE DAY | Got #Oil? Hedgeye's Quantitative Set-Up

CHART OF THE DAY | Got #Oil? Hedgeye's Quantitative Set-Up - 04.09.15 Chart

 

Editor's Note: Below is a brief excerpt from today's Morning Newsletter written by CEO Keith McCullough. Click here to learn more and become a subscriber.

 

Today’s note is more of a process one (let me know if you want more or less of these – there are many processes within The #Process – and processes are always evolving) but if you go back to yesterday’s Early Look on Oil, it explains what we signaled and why quite well:

 

    1. Analyst (Ben Ryan) doesn’t like Oil right now  
    2. In parallel, my risk management process, which includes cross asset class correlation analysis with USD…
    3. Picks WTI (instead of Brent) as the best way to express that = SELL at the top-end of the risk range = $53.68

 


Hijacking A Hockey Player

“Don’t let your emotions hijack your thinking.”

-Ray Dalio

 

While we’d all love to be as objective as we can be in this profession, being human often challenges us on that front. Especially if we’re not running a purely rules-based strategy (which has its risks), we’re always going to have a qualitative debate bouncing around in our heads.

 

In another solid chapter from Learn or Die titled “Emotions: The Myth of Rationality”, Ed Hess reminded me of this basic reality by asking a simple question:“If cognition and emotion are inherently integrated, is it possible to leave emotions out of the discussion?”

 

Probably not. But that doesn’t mean we can’t create a risk management process that subordinates our individual emotions during the debate. If you’re like me, and you choose to work on a research team, keeping everyone else’s emotions in check is a big challenge too.

 

Hijacking A Hockey Player - z9

 

Back to the Global Macro Grind

 

If you’ve seen me play hockey (or look up my penalty minutes), you get that I can’t play the game without emotion. I get that – but I didn’t get how much that would affect me as a “stock picker” when I first became a buy-side analyst. It didn’t affect me in a good way.

 

Especially on the short side when you have a boss and/or a large audience of peers watching your position, when something is going against you, it’s doesn’t feel cool.

 

As I grew into a PM I used to tell my analysts: ‘you either fight it, or close it’ (as in the short position) – and depending on who I was talking to (and what their emotional state was that day), I’d get a wide array of reactions to a pretty basic ultimatum.

 

Eventually, I just stopped letting my analysts trade and size their positions. That made our discussions more objective. The analyst either wanted me to have it on or not. Other than mapping calendar catalysts, all of the timing and trading of positions was up to me.

 

With responsibility comes a repeatable process, so I built my multi-duration “risk range” model as a result.

 

At a very basic level, here’s how my decision making process works:

 

  1. Analysts are constantly picking securities and generating new ways to express their ideas
  2. In parallel, I run multi-duration, multi-factor risk metrics on their ideas
  3. Then I pick the highest probability ideas defined by a math-based (objective) process

 

Trust me, I don’t have any emotional affiliation with any of their ideas. They are all just tickers to me. And once I pick from what they’ve picked, the risk range #process has the following decision making tree from a timing/sizing perspective:

 

  1. Immediate-term TRADE risk range gives me a high and low end of price probability… and
  2. I try my best to make sales at the high-end of the range and buys/covers at the low-end… as I’m
  3. Constantly trying to contextualize the TRADE within my intermediate (TREND) and long-term (TAIL) durations

 

That’s it. That’s what I do. And I can tell you that it took a long time to get that this is the best way to keep my competitive (emotional) risk factor at bay. To each their own, eh.

 

Today’s note is more of a process one (let me know if you want more or less of these – there are many processes within The #Process – and processes are always evolving) but if you go back to yesterday’s Early Look on Oil, it explains what we signaled and why quite well:

 

  1. Analyst (Ben Ryan) doesn’t like Oil right now  
  2. In parallel, my risk management process, which includes cross asset class correlation analysis with USD…
  3. Picks WTI (instead of Brent) as the best way to express that = SELL at the top-end of the risk range = $53.68

 

WTI Oil = down -5.6% on the day. So easy two hockey-heads (Ben was drafted by the Nashville Predators) can do it. And, fortunately, Ben is far less emotional than I can be – so we compliment one another as line-mates in decision making quite well.

 

For those of you who are new to evaluating our #process, every day (in our Daily Trading Ranges product) I give you A) the immediate-term TRADE risk range with B) our intermediate-term TREND research view in brackets. Here are all 12 of those big macros for today:

 

UST 10yr Yield 1.84-1.93% (bearish)
SPX 2070-2093 (bullish)
RUT 1 (bullish)
DAX 111 (bullish)
VIX 13.03-15.95 (bullish)
USD 96.95-98.99 (bullish)
EUR/USD 1.07-1.09 (bearish)
YEN 118.99-120.68 (bearish)
Oil (WTI) 46.53-53.68 (bearish)
Natural Gas 2.56-2.81 (bearish)
Gold 1180-1218 (bearish)
Copper 2.65-2.79 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Hijacking A Hockey Player - 04.09.15 Chart


April 9, 2015

April 9, 2015 - Slide1

 

BULLISH TRENDS

April 9, 2015 - Slide2

April 9, 2015 - Slide3

April 9, 2015 - Slide4

April 9, 2015 - Slide5

April 9, 2015 - Slide6

 

BEARISH TRENDS

April 9, 2015 - Slide7

April 9, 2015 - Slide8

April 9, 2015 - Slide9

April 9, 2015 - Slide10

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April 9, 2015 - Slide12

April 9, 2015 - Slide13


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This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

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