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QUICK TAKE: What's Ahead For Oil Prices

QUICK TAKE: What's Ahead For Oil Prices - oil cartoon 03.29.2016

 

Below is analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning: 

 

"Stronger Dollar = weaker reflation returns… no follow through to Oil being +1.2% (WTI) last week as it’s still -5% in the last month and trading below @Hedgeye TREND resistance of $47.37/barrel."

 


An almost perfect week for US Equity Beta is looking to hold this morning...

Client Talking Points

US GDP

Post a sequentially accelerating nominal Retail Sales report on Friday (June +2.7% y/y), our predictive tracking algo for GDP has ramped to its highest level of 2015 at +2.3% y/y which could mean something as high as +3-4% the way Wall St looks at the headline (q/q SAAR) = 1st time our forecast has been above the Atlanta Fed and consensus.

UST 10TR

The #ProfitCycle recession TREND call is still in play, so it will be interesting to see GDP rising (sequentially, which can happen in any data series, especially if the Deflator is understated and real growth overstated) vs. Earnings Season as they’ll be going different ways; risk range on the 10yr has widened out to 1.31-1.61% and should.

Oil

Stronger than recession in GDP data = stronger Dollar = weaker reflation returns… no follow through to Oil being +1.2% (WTI) last week as it’s still -5% in the last month and trading below @Hedgeye TREND resistance of $47.37/barrel.

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
7/17/16 51% 0% 0% 13% 30% 6%
7/18/16 50% 0% 0% 13% 30% 7%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
7/17/16 51% 0% 0% 39% 91% 18%
7/18/16 50% 0% 0% 39% 91% 21%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company Ticker Sector Duration
TLT

Long Bonds (TLT) = #GrowthSlowing, yield curve compression 

GLD

Gold (GLD) = Protection from global currency devaluation and inflation/down USD – You can travel anywhere on earth and get a quote in local currency 

TIP

Treasury Inflation-Protected Securities (TIP) = Combination of the above exposures 

Three for the Road

TWEET OF THE DAY

Dogmatic faith in central banking magic is dying a slow death. #Fed #ECB #BoJ #markets #FX @KeithMcCullough pic.twitter.com/EqxE04s6oT

@Hedgeye

QUOTE OF THE DAY

“Freedom lies in being bold.“

-Robert Frost

STAT OF THE DAY

Arod has a career batting average of .295.


CHART OF THE DAY: A Closer Look At Retail Sales

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more. 

 

"... A few points on why we’ve been revising GDP higher throughout the quarter:

  1. The government has been understating “inflation” in both GDP and PCE Consumption reports
  2. When you understate inflation, you can overstate “real” consumption and GDP growth

A real-world example of this is Retail Sales. Because it’s reported nominally, lower gas prices actually drag on reported growth while higher prices – despite acting as a tax on real consumption – actually manifest as stronger reported growth."

 

CHART OF THE DAY: A Closer Look At Retail Sales - 07.18.16 EL Chart


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Almost Perfect

“If everything was perfect, you would never learn and you would never grow.”

-Beyonce Knowles

 

Last week, after registering 4 consecutive all-time closing highs in a row, US Equity Beta (SP500) was almost perfect. On Friday (Day 5), it lost -0.09%, closing at 2161. That’s +1.65% higher than where it was one year ago today.

 

Perfect was not my macro market “call” last week. Unless we define all of my macro longs being down on the week (and all of my macro shorts being up) as perfectly terrible, that is…

 

If everything was perfect, I’d never have to timestamp any ideas or themes. My macro teammates and I would never learn or grow.

 

Back to the Global Macro Grind

 

Depending on how you’re positioned, you might find our call on US GDP this morning almost perfect. It’s high enough to take out the GDP recession risk (for now), and won’t be reported in time for the Fed to have to tighten on it…

 

After Friday’s US Retail Sales sequential (month-over-month) acceleration to +2.7% year-over-year, our GIP (Growth, Inflation, Policy) predictive tracking algorithm has ramped to a YTD high forecast of +2.3% year-over-year for Q2.

 

If we extrapolate that into a forecast that would resonate with Wall St. (they like to read GDP on a quarter-over-quarter SAAR basis), US GDP could be as high as +3-4% in Q2. If you’ve been looking for that number for a year now, that’s almost perfect too!

 

Almost Perfect - 4  growth cartoon 03.02.2016

 

A few points on why we’ve been revising GDP higher throughout the quarter:

 

  1. The government has been understating “inflation” in both GDP and PCE Consumption reports
  2. When you understate inflation, you can overstate “real” consumption and GDP growth

 

A real-world example of this is Retail Sales. Because it’s reported nominally, lower gas prices actually drag on reported growth while higher prices – despite acting as a tax on real consumption – actually manifest as stronger reported growth.

 

In addition to thinking through the timing of a better than expected Q2 GDP report: A) don’t forget that our call on the #ProfitCycle Recession remains on the other side of it and B) GDP up sequentially in Q2 means down again, sequentially, in Q3.

 

For Q3 2016 our current GIP model is tracking:

 

  1. GDP year-over-year growth of +1.9-2.1%
  2. GDP quarter-over-quarter SAAR of 0.8%

 

In other words, not too hot (so the Fed won’t raise rates) and not too cold (so you don’t yet have to freak out about a US #Recession and sell your charts). If the government reported real GDP using the right Deflator, we’d already be in a recession…

 

But, heh, it’s an election year!

 

Another way to look at this is that I have an almost perfect explanation for why our favorite S&P Sector setup got crushed last week (Utilities -1.0% vs. Financials +2.6%).

 

If our math is right, sequentially accelerating GDP growth (Q2 vs. Q1) should manifest into rising bond yields (from all-time lows) inasmuch as slowing growth (Q3 vs. Q2) should result in a reversion back to the TREND of falling yields.

 

CONTEXT: don’t forget that it literally took a full year for Consensus Macro to agree with us on our call for an all-time low long-term US Treasury Yields. Right on time though, with net positioning at its LONGEST position of 2016, the 10-year Yield ramped +19 basis points last week. Here’s how that positioning looks (CFTC Futures & Options data):

 

  1. 10YR TREASURY: net LONG position +27,841 contracts week-over-week to +114,702 contracts
  2. The 3 month and 1 year average net positions for the 10YR are net SHORT -21,166 and -6,260, respectively
  3. On a 1-year z-score that +114,702 net LONG position is a perfect +2.00x

 

Yep. Right on the screws, perfect. Any time a macro position is plus or minus 2.0x, our sentiment model says fade the directional move in whatever that position is, for a TRADE… then you either buy/sell more (post correction) if the TREND remains.

 

Nope. It’s not easy nailing every counter-TREND move (i.e. immediate-term TRADES) and staying with the intermediate-term TREND itself. Over time, it’s not only “not easy” – it’s impossible.

 

That said, the goal of the game is perfection. And when I can define most of my daily/weekly mistakes using economic and market data, I’m happier than I’d be if I was always wrong but rarely sure and/or honest as to why.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.31-1.61%

SPX 2106-2187

NASDAQ 4

VIX 12.02-17.23
USD 95.66-96.98
Oil (WTI) 43.77-47.27

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Almost Perfect - 07.18.16 EL Chart


The Macro Show with Keith McCullough Replay | July 18, 2016

CLICK HERE to access the associated slides. 

 

An audio-only replay of today's show is available here.


July 18, 2016

Want more from Daily Trading Ranges? CLICK HERE to submit up to 4 tickers you'd like to see on the list. 

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.61 1.31 1.60
SPX
S&P 500
2,106 2,187 2,162
RUT
Russell 2000
1,161 1,225 1,205
COMPQ
NASDAQ Composite
4,890 5,110 5,030
NIKK
Nikkei 225 Index
14,919 16,590 16,498
DAX
German DAX Composite
9,341 10,263 10,067
VIX
Volatility Index
12.02 17.23 12.67
USD
U.S. Dollar Index
95.66 96.98 96.56
EURUSD
Euro
1.09 1.12 1.11
USDJPY
Japanese Yen
100.94 106.70 104.91
WTIC
Light Crude Oil Spot Price
43.77 47.27 46.28
NATGAS
Natural Gas Spot Price
2.61 2.92 2.76
GOLD
Gold Spot Price
1,317 1,375 1,338
COPPER
Copper Spot Price
2.08 2.28 2.23
AAPL
Apple Inc.
94.62 99.47 98.78
AMZN
Amazon.com Inc.
721 758 735
NFLX
Netflix Inc.
93.88 100.24 98.39
GOOGL
Alphabet Inc.
695 746 736
JPM
J.P. Morgan Chase & Co.
58.40 65.01 64.18
INFY
Infosys Tech.
16.40 17.99 16.81



Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, along with our intermediate-term (TREND) view.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.


Early Look

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