“Don’t watch the clock; do what it does – keep going.”
My family felt bad watching Jordan Spieth melt-down at The Masters yesterday – until he made it clear that he didn’t feel bad for himself. The 22 year-old from Dallas, Texas acted like a 40 year-old man in defeat. No excuses. Just a big lesson learned.
Q: How do you go from birdying the last 4 holes on the front 9 (with the lead in the last round of a Major) to going bogey, bogey, quadruple-bogey? A: You lay off the ball, just a little, in trying to protect what seemed like an unsurmountable lead.
Do you ever lay off your game? Do ever veer from your #process? These are easy mistakes to make. We all make them. What’s hard is staying focused and disciplined during the clutch parts of the game. For macro markets, that time is now.
Back to the Global Macro Grind…
That’s right Earnings Season fans, it’s game time. Alcoa (AA) will kick things off tonight, followed by Jamie Dimon’s JP Morgan (JPM) on Wednesday. All the while, you’ll get PPI, CPI, Retail Sales, and Industrial Production reports for the month of March.
Three weeks ago (after the slow-volume squeeze off those epic FEB lows), was it time to layoff the bear case for the US economic and profit cycle slowing? Or was it time to get back in the go-zone and start shorting High Beta stocks again?
With the US Dollar down another -0.4% last week to new YTD lows of -4.5%, was it time to “buy reflation because global growth has bottomed” or is it time to get long #StrongDollar and short Commodities again?
What does the signal (process) say?
- US Dollar immediate-term TRADE oversold within a bullish long-term TAIL setup (93.12 TAIL support)
- Oil (WTI) immediate-term TRADE overbought post a +8.0% weekly ramp (following a -6.9% weekly decline!)
- Gold immediate-term TRADE overbought after another +1.7% gain last week to +17.2% YTD
Whether you are a Gold Bull right now or not (I am, from a price), the overbought signal is the signal inasmuch as the immediate-term TRADE overbought signal in the Japanese Yen vs. the US Dollar is obvious.
So, you might cover some Japanese Equity Shorts on that. The Nikkei was down another -2.1% last week to -16.9% YTD. No one ever went broke booking gains. Oh, and smile when you make birdies like that!
Generally speaking, staying away from Global Equities from those March highs has been a good call. US Equities have been down for 2 of the last 3 weeks as both European and Japanese stocks continue to crash from their 2015 cycle highs:
- Argentina -7.3% last week to +4.7% YTD
- Emerging Markets (MSCI) -1.1% last week to +2.9% YTD
- SP500 -1.2% last week to +0.2% YTD
- Nasdaq -1.3% last week to -3.1% YTD
- Russell 2000 -1.8% last week to -3.4% YTD
- EuroStoxx 600 -0.4% last week to -9.3% YTD
- German DAX -1.8% last week to -10.4% YTD
- Italy’s MIB Index -1.5% last week to -18.3% YTD
In other words, the closer your country’s stock market has been to Down Dollar (EM and Commodities), the less-bad bogey golf you’ve been playing. If you want to be playing with the lead (birdies and pars), it’s been all about the Long Bond, baby!
Since we like the initial phase of Argentina’s political turnaround story (Kirchner corruption out, Macri in), I could definitely get interested in buying their stock market if it has more down weeks like it did last week. An Up Dollar will most likely do that.
In addition to Commodities (CRB Index) having an inverse correlation (30-day duration) of -0.88 vs. the US Dollar, it’s important to realize that the SP500 now has a -0.90 correlation on that same duration. They’re both begging for a “dovish” Fed.
It’s also interesting to note where, from a sentiment perspective, Consensus Macro futures and options positioning is. Here’s the latest CFTC non-commercial net positioning:
- SP500 (index + Emini) +29,272 LONGER last week to -103,123 net SHORT = +0.39x 1yr z-score
- 10YR Treasury -67,397 SHORTER last week to -85,976 net SHORT = -1.02 1yr z-score
- Gold steadily high at +163,589 net LONG contracts = +2.17x 1yr z-score
Yep. Wall Street is as long “reflation” (Oil and Gold on an absolute basis, and SPY on a relatively less net short basis) as it has been all year long and still fighting the wall of worry on our Long Bond Bull.
The 10yr US Treasury Yield dropped another 5 basis points (down -55 bps YTD) last week to 1.72% and continues to signal what US Equity’s top performing Style Factor (Low Beta Stocks = +7.5% YTD vs High Beta -3.0%) does…
Don’t argue with the clock on #TheCycle; do what it does – and keep going with your #GrowthSlowing positioning.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.67-1.82%
Oil (WTI) 35.16-39.99
Best of luck out there this week,
Keith R. McCullough
Chief Executive Officer