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“Don’t halt before you are lame.”

-English Proverb

The ole English proverb had that one right, didn’t it?

At one point yesterday (lunch time on the East Coast), Greek, Chinese, and US stocks were all halted, at the same time. And I’m sure it was just the risk manager in me, but I couldn’t for the life of me understand how that was bullish.

Notwithstanding that the tail-wagging-the-dog on all of this is called Global #GrowthSlowing, US equity traders were in no mood to have NYSE’s management team leave them hanging on the #halt. Old Wall boys, that was lame.

Don't Halt! - HALT cartoon 07.08.2015

Back to the Global Macro Grind

After they un-halted the darn thing (NYSE – New York Stock Exchange) the selling continued, tagging the SP500 with one of its worst 1-day drops in a year, -1.7%.

The almighty 200-day Moving Monkey snapped and the SP500 moved to -0.6% YTD amidst a -3.9% correction from the all-time closing highs of 2130. #OhSnap!

After “High-Beta” as a Style Factor led last week’s decline (High Beta SP500 stocks -2.3% last week vs. Low Beta +0.5%), they went right after that beta (again) into yesterday’s bell with the following 3 moves falling fastest:

  1. Oil & Gas Stocks (XOP) -3.7%
  2. Biotech Stocks (IBB) -2.9%
  3. Semis (SMH) -2.6%

So much for guys nailing it buying “cheap Oil & Gas stocks” that are levered to #deflation. In risk management speak, those are called “negative divergences” (i.e. they were down more than the market bogey was).

Reality is that no matter what you think about Greece or some guy losing his right hand for putting in a sell order in China today, the internals of the US stock market have looked a lot worse than the bogey (SP500) for some time now.

One of my Canadian buddies (and top competitors) was nice enough to acknowledge that yesterday and throw in the towel on the “reflation and global growth is back – so buy the Industrials and Financials” call.

Cheers to that and the following YTD returns at the sub-sector level for classic #LateCycle S&P sectors:

  1. Energy Stocks (XLE) -8.1% YTD
  2. Industrials (XLI) -5.5% YTD
  3. Financials (XLF) -2.3% YTD

In that order, what are the catalysts to get those “underweights” in your portfolio to stop contributing to YTD relative  performance vs. the bogey (SP500 -0.6% YTD)?

  1. Down Euro? Nope. That = #StrongDollar, Down Oil/Gas, Down Levered Energy Tickers
  2. #SecularStagnation? Nope. China, Europe, and USA slowing all at the same time in 2H 2015
  3. How about a rate hike? Nope. Fed Fund futures just smashed that SEP “rate hike” trade

Oh, right. That Fed policy thing happened too yesterday where the Fed Minutes revealed more of what you already know – and that’s that Greece, China, Jobs, #Deflation (any or all of them really) #halt rate hike rhetoric, in a hurry.

If all you did after last week’s US Jobs Report (right before it Fed Funds Futures were implying a 40% probability of a SEP rate hike, today that’s back down to 10% with the UST 10yr at 2.23%) was:

  1. Downshift to Low-Beta Stocks (sell high-beta, buy low-beta)
  2. Buy Treasury Bonds (any duration)
  3. Buy stocks that look like bonds (Utilities, REITS, etc.)

You’ve absolutely crushed it this week. And we salute you for making that risk managed pivot.

If, instead, you’re betting on:

  1. A big breakout in the Euro (Down Dollar)
  2. Reflation and Global growth accelerating
  3. And a rate hike in September

I sincerely wish you the best of luck.

But, fair warning: if you are an analyst and/or PM working on a multi-PM platform, your boss might just #halt your adding to that position as centrally-planned-markets continue to try to bounce “off the lows.”

Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views) are now:

UST 10yr Yield 2.18-2.32% (bearish)

SPX 2035-2075 (bearish)
RUT 1 (bearish)
Nikkei 192 (bullish)
VIX 16.65-20.76 (bullish)
USD 95.74-97.42 (bullish)
EUR/USD 1.09-1.12 (bearish)
YEN 120.85-122.97 (bearish)
Oil (WTI) 50.34-55.38 (bearish)

Nat Gas 2.63-2.78 (bearish)

Gold 1150-1185 (neutral)
Copper 2.44-2.59 (bearish)

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer

Don't Halt! - z 07.09.15 Chart