McCullough: The Broader Risk of Falling Volume

In this brief excerpt from The Macro Show this morning, Hedgeye CEO Keith McCullough answers a subscriber’s question on how he looks at declining market volume.


Subscribe to The Macro Show today for access to this and all other episodes. 

Yen, Commodities + Spain

Client Talking Points


A big move overnight in Japan taking something that hasn’t been part of the 2015 macro narrative right back into the flow. Yen down -1.1% testing fresh YTD lows vs. USD at 122.87. The Nikkei? It absolutely loves that, closing at another YTD high of 20,437. It's up +18% YTD.


Dollar up +3.1% last week = CRB Index down -2.5% as the 30-day correlation remains quite high at -0.90… Meanwhile, a #StrongDollar morning here keeps the commodity correction in play, with Gold and Oil pulling back to support levels that I’d buy/cover ahead of Friday’s U.S. GDP bomb.


The first bearish signal for the Spanish IBEX in 2015 with an immediate-term TRADE breakdown through 11,486 support and negative divergence versus a weak European stock market morning.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

One way to invest in Lower-For-Longer, from an equity perspective, is being long U.S. REITS (VNQ). The reality is that we are in a #LateCycle slowdown and the jockeying around each incremental data point will continue to get more and more intense as the Fed’s only ammo for suspending the cycle that has unfolded many times over is to push out the dots on a rate hike. #LowerForLonger.


The ITB turned in modest positive absolute and relative performance in the latest week as the advance in interest rates ebbed and the high frequency mortgage purchase application data continued to reflect improving housing demand trends. This is a data heavy week for housing. NAHB Builder Confidence dropped for the 4th time in 5 months, dipping -2pts sequentially in May to an Index reading of 54.   Confidence currently sits +9 pts higher than May of last year and is basically right on the average reading of 55 observed over the last three expansionary periods.  Further, at  the current reading of 54, the index remains well above the Better-Worse Mendoza line of 50, signaling builders continue to view conditions favorably.


The counter-TREND moves in the USD and commodities have been extensive and now confirmed: 1) U.S. Dollar: Down another 1.20% week-over-week to complete its BULLISH to BEARISH TREND Reversal. The dollar is now BULLISH on a TAIL duration (three years or less) and BEARISH on a TREND duration (3-Months or more) 2) CRB Index: +2.0% week-over-week and +5.5% 1-Month Change. The CRB is now BULLISH on a TREND duration and BEARISH on a TAIL duration.

Three for the Road


How does the Fed blame the "weather" on a -2.3% US Durable Goods slowing y/y in April? @federalreserve



"Watch out for people who think it's embarrassing not to know." - Ray Dalio


In China, the Shanghai Composite gained another +2% and is up a whopping +52% YTD.

RTA Live: May 26, 2015

Here is the replay of today's edition of RTA Live.


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

REPLAY | New Best Short Idea Overview with Tom Tobin | Q&A on $MD + $HCA $HOLX $ZMH


Hedgeye Healthcare Sector Head Tom Tobin and Analyst Andrew Freedman hosted a live Q&A session Wednesday May 27th at 12:30PM ET. They gave a high level overview of our short thesis on Mednax (MD). 


Tom and Andrew will also answered questions related to HCAHOLX and ZMH, catch the replay above.

The Momentum Mob

This note was originally published at 8am on May 12, 2015 for Hedgeye subscribers.

“When the mob gains the day, it ceases to be any longer the mob.”

-Napoleon Bonaparte


In markets, the momentum mob constantly cares about one thing – #charts. Lots and lots and lots of charts. The linear moving average ones are the simplest to scare you with. My 5 year old daughter can generate them on an iPad, so they have the broadest demographic point-and-click appeal. It’s all about the 50 and 200 hundred day, bro.


No matter where you go this morning, here we are – in the midst of another “breakout” in US bond yields. Notwithstanding that this one has been caused by an epic breakout in Global Yields, US equity only guys looking at TLT have the “bearish chart” now inasmuch as they had the uber bearish Oil one down at $43/barrel.


Even though many of you were right on bond yields (lower-for-longer) for 16 months starting in January of 2014, if you remained bearish on bond yields at the 2015 lows like I did, you have been wrong (on bonds) for a month. And now the mob has you by the #charts, so it’s time to … uh, panic?


The Momentum Mob - 19


Back to the Global Macro Grind


What’s a +28% ramp (in 24 hours) in German Bund Yields, amongst friends? That’s gotta be good for “stocks”, right? Wrong. As the bond yield #charts have “broken out”, sorry bros, it’s been bad for stocks too.


Q: If you can’t be long stocks or bonds, what do you do?

A: Raise cash


At 62% Cash in our Asset Allocation Model, at least we got something right. But most of that “raising cash” came from the equity side of what we liked in Q1. That said, what you really want to know is why I didn’t do the same in Treasuries?


Before I try to answer that question (again), let’s contextualize this epic 1-month move in Global Bond Yields:


  1. US 10yr Treasury = +34 basis points (bps) to 2.34%
  2. Canadian 10yr = +45 bps to 1.82%
  3. German 10yr = +53 bps to 0.68%
  4. French 10yr = +56 bps to 0.98%
  5. Italian 10yr = +60bps to 1.86%
  6. Portuguese 10yr = +84 bps to 2.42%


In other words, even if you don’t look at % moves and rates of change, on an absolute basis being long Treasuries vs. short just about everything else (1 through 5 on that list) was a relative winner!




Not on the performance part (German Bund Yield move was +353% vs. the UST move of +17%). When it comes to getting things right/wrong, I don’t calculate losses in cocoa-puff terms. TLT 1-month losses have been real. I should be held to account for that.


So why didn’t I pull a Jedi mind trick on all of you and book all of our gains in the Long Bond (TLT) at the top (with bond yields re-testing their all-time lows in January, or with the 10yr UTS yield down at 1.85% in April for that matter)?


A: #process


I.e. there would be no fundamental way for me to explain it within the risk management framework in which our longer-term growth and inflation views evolve.


Which obviously begs the question as to whether or not a 1-month move in bond yields has rendered our #process broken OR it’s simply signaling that stocks and bonds don’t go up forever (with no volatility and no down-days).


To review what we believe (because market #history does):


  1. Both local and global bond yields falls when the rate of change in growth is SLOWING
  2. Both local and global bond yields rise when the rate of change in growth is ACCELERATING


With both the trending rate of change in both US and Global Growth #slowing (with our model suggesting y/y US growth slowing to 1.8% in 2H of 2015), there’s no fundamental reason for me to be bearish on Long-duration bonds other than price momentum.


This is where the whole #ChartChasing thing comes into play. In my former hedge fund life I used to see guys chasing 50 and 200 day moving monkeys all of the time. So I taught myself to remain calm and not do that. I shorted Russell 2000 yesterday instead.


If both gas prices and bond yields head higher (from here), someone is going to gain the day. And that’s not going to be the American and/or European consumer. It’ll be a mean macro mob, because their charts will tell you to be short everything.


Our immediate-term Global Macro Risk Ranges are now as follows:


UST 10yr Yield 1.91-2.32%

SPX 2079-2117
RUT 1209-1244
VIX 13.03-15.79
USD 94.09-95.89
Oil (WTI) 55.62-61.12

Gold 1170-1200


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Momentum Mob - z 05.12.15 chart



We remain negative on the Macau stocks but tactically we’d like to see a relief rally before re-shorting.  The Galaxy Phase 2 opening could actually provide a little bit of a catalyst – it won’t be awful and but investor sentiment is awful ahead of this period of capacity increases.  We’re projecting some market growth from the expansion but most of the business generated at Phase 2 should come from the other properties.  For 2015/2016 we remain most concerned with the trends in base mass, which we believe are markedly worse than anticipated by the Street.


Please see our detailed note:

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 80.47%
  • SHORT SIGNALS 78.68%