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Poll of the Day: Which "Simpsons" Character BEST Represents Centrally Planned Markets

Takeaway: What do you think? Cast your vote. Let us know.


Daily Market Data Dump: Tuesday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, rates and bond spreads, key currency crosses, and commodities. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Tuesday - equity markets 8 30

 

Daily Market Data Dump: Tuesday - sector performance 8 30

 

Daily Market Data Dump: Tuesday - volume 8 30

 

Daily Market Data Dump: Tuesday - rates and spreads 8 30

 

Daily Market Data Dump: Tuesday - currencies 8 30

 

Daily Market Data Dump: Tuesday - commodities 8 30


August 30, 2016

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  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.62 1.50 1.57
SPX
S&P 500
2,167 2,192 2,180
RUT
Russell 2000
1,226 1,251 1,244
COMPQ
NASDAQ Composite
5,175 5,260 5,232
XOP
SPDR S&P Oil & Gas Explore
35.99 38.11 37.59
RMZ
MSCI US REIT
1,210 1,241 1,227
NIKK
Nikkei 225 Index
16,330 16,815 16,737
DAX
German DAX Composite
10,383 10,690 10,544
VIX
Volatility Index
11.25 14.36 12.94
USD
U.S. Dollar Index
93.96 95.98 95.54
EURUSD
Euro
1.11 1.13 1.11
USDJPY
Japanese Yen
99.34 102.45 101.88
WTIC
Light Crude Oil Spot Price
44.96 49.29 46.98
NATGAS
Natural Gas Spot Price
2.53 2.97 2.90
GOLD
Gold Spot Price
1,310 1,360 1,327
COPPER
Copper Spot Price
2.05 2.15 2.07
AAPL
Apple Inc.
106.01 110.10 106.82
AMZN
Amazon.com Inc.
755 778 771
JPM
J.P. Morgan Chase & Co.
63.68 66.99 66.95
INTC
Intel Corp.
34.16 35.90 35.55
BAC
Bank Of America
14.80 15.98 15.84
EXPE
Expedia Inc.
109 116 109


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.


CHART OF THE DAY | Stocks: Puppies & Rainbows? Or Jobs Report Bomb

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.

 

"... To put this in practical terms, let’s go through the SP500 setup one more time:

  1. It just had a text-book bounce off the low-end of my immediate-term 2167-2192 risk range
  2. It’s still signaling bullish from an intermediate-term TREND perspective (2141 support)
  3. It’s likely going to have a big move in/out of the US jobs report on Friday

If the jobs number is a bomb (Dollar Down, Rates Down), can stocks rip? Yes. If the jobs number is rainbows and puppy dogs (Dollar Up, Rates Up), can stocks get ripped? Yes. Can anything happen in between? Yes."

 

CHART OF THE DAY | Stocks: Puppies & Rainbows? Or Jobs Report Bomb - 08.30.16 EL Chart


Bending Bell Curves

“You typically find a different distribution than a bell curve.”

-Benoit Mandelbrot

 

Since I got back from vaca, the questions I’ve been getting on The Macro Show (now daily at 9AM EST @HedgeyeTV), have been outstanding. I learn a lot by trying to simplify complex topics like asymmetry, volatility, and power-laws. Lots to learn, together.

 

On the topic of what he calls the “power of power laws”, the aforementioned quote comes from The Brot of all fractal bots, Benoit Mandelbrot. Here’s his great statistical summary of how long-term markets prices haven’t fit the pattern of a bell curve:

 

In fact, the bell curve fits reality very poorly. From 1916 to 2003, the daily index movements of the Dow Jones Industrial Average do not spread out on graph paper like a simple bell curve. The far edges flare way too high: too many big changes. Theory suggests that over time there should have been 58 days when the Dow moved more than 3.4%; in fact there were 1,001. Theory predicts 6 days of index moves beyond 4.5%; in fact there were 366. And index swings of more than 7% should come once every 300,000 years; in fact the 20th century saw 48 such days. Truly, a calamitous era that insists on flaunting all predictions.” (The Misbehavior of Markets, pg 13)

 

Bending Bell Curves - bell curve

 

Back to the Global Macro Grind

 

Inasmuch as market prices can “shock” people in a short period of time, they can do absolutely nothing for long periods of time. There is nothing “normal” (in bell curve terms) about risk managing markets. So study deliberately and embrace uncertainty.

 

Prior to last week, there had only been 5 trading days in the last 30 where the SP500 moved more than +/- 0.50%. Now, including yesterday’s “ramp” of +0.52%, the SP500 has had 2 up/down days of barely > 0.50% in the last week (one each way).

 

In other words in a sea of nothingness, if you were positioned net shorter (or less long) ahead of the -0.52% down day (AUG 24th) and then net longer (or less short) coming into yesterday’s +0.52% move, you did your job, selling (some) high and buying (more) low.

 

Gotta love the +/- 0.52% number btw. Right on the rails! Maybe someone centrally planned that.

 

Not to go all immediate-term TRADE on you this morning without contextualizing what I’m thinking about those moves within my intermediate and long term TREND and TAIL durations, but the dynamism of the short-term is why I built my “risk range” process.

 

If my inputs and assumptions for the immediate-term risk range were static, using bell-curve standard deviations of risk, my daily ranges would be a lot more wrong than they’ve been generally right.

 

To the contrary, I’m constantly resetting my inputs and assumptions based on real-time PRICE, VOLUME, and VOLATLITY. That’s why the risk ranges can be tightening some of the time and widening at other times. Currently, for the SP500, the risk range is tightening.

 

If a fund of fund wants to call this a “systematic strategy” within my multi-factor, multi-duration process, so be it. I call it a risk management overlay with some rules:

 

  1. When VOLATILITY is undergoing a PHASE TRANSITION from bearish to bullish, risk ranges are widening
  2. When VOLATILITY is undergoing a PHASE TRANSITION from bullish to bearish, risk ranges are tightening

 

And since I like it tight, tightening ranges are what I am looking for on the long side inasmuch as widening ranges are what I am looking for on the short side. Phase Transitions, don’t forget, are confirmed changes in intermediate-term TRENDs. They aren’t TRADEs.

 

Within the immediate-term TRADE duration there are a ton of head-fakes. That’s why I humbly submit you need both a fundamental research team and a set of potential calendar catalysts to be on the lookout for what aren’t head-fakes.

 

To put this in practical terms, let’s go through the SP500 setup one more time:

 

  1. It just had a text-book bounce off the low-end of my immediate-term 2167-2192 risk range
  2. It’s still signaling bullish from an intermediate-term TREND perspective (2141 support)
  3. It’s likely going to have a big move in/out of the US jobs report on Friday

 

If the jobs number is a bomb (Dollar Down, Rates Down), can stocks rip? Yes. If the jobs number is rainbows and puppy dogs (Dollar Up, Rates Up), can stocks get ripped? Yes. Can anything happen in between? Yes.

 

That’s the point. I won’t get every move right. But, provided that I know where I am in the risk range and what my pending catalysts are (however perverse their outcomes vs. “fundamentals” may be!), the better prepared I am for the un-predictable.

 

Or so me thinks at this stage of my career… Because, guess what? I’ve tried mostly everything else and this is the best I can do, so far, in trying to manage immediate-term risks within the ever bending and trending curve of economic gravity.

 

Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND research views in brackets) are as follows:

 

UST 10yr Yield 1.50-1.62% (bearish)

SPX 2167-2192 (bullish)
RUT 1 (neutral)

NASDAQ 5175-5260 (bullish)

XOP 35.99-38.11 (neutral)

RMZ 1 (bullish)

Nikkei 165 (bearish)

DAX 100 (bearish)

VIX 11.25-14.36 (bullish)
USD 93.96-95.98 (bullish)
EUR/USD 1.11--1.13 (bearish)
YEN 99.34-102.45 (bullish)
Oil (WTI) 44.96-49.29 (bearish)

Nat Gas 2.53-2.97 (bullish)

Gold 1 (bullish)
Copper 2.05-2.15 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bending Bell Curves - 08.30.16 EL Chart


US Equity Beta bounced right where it should have – fairer fight now:

Client Talking Points

EUR/USD

With both the Euro and the Yen signaling immediate-term TRADE oversold vs. the USD, now things get interesting ahead of AUG US economic data; bad data is “good” for stocks don’t forget (i.e. Down Dollar is, short term).

Oil

We’ve been bearish on Oil at the top-end of its current $44.96-49.29 risk range, but there’s no reason why it can’t retrace the top-end of that range if USD sells off (current 2wk inverse correlation is -0.84, so USD matters, short term).

VIX

Front month had its ramp to the top end of its 11.25-14.36 risk range and backed off right where it should have; now we have month-end and no volume (total US Equity Volume -26% vs. the 1yr avg yest); though tape to be short towards 2192 SPX.

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
8/29/16 43% 7% 7% 15% 22% 6%
8/30/16 45% 6% 8% 15% 20% 6%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
8/29/16 43% 21% 21% 45% 67% 18%
8/30/16 45% 18% 24% 45% 61% 18%
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
GLD

On the other side of the USD expectation, Gold (GLD) lost -1.5% w/w. Again we still like UUP and GLD as a basket against other centrally-planned currency regimes elsewhere.

TLT

Long Bonds (TLT), which has been on Investing Ideas since August 4th, 2014, finished the week -0.25%. We continue to believe that growth is the main catalyst for the curve amidst all the central planning noise. Slower growth gets discounted in a flatter curve so even if rates are hiked into a late cycle slow-down, the yield curve pancakes (the long-end of the yield curve fall and the short-end goes up). 

UUP

Strength in the U.S. dollar, with renewed rate hike expectations back in the mix over the last few weeks, gave a good boost to U.S. Dollar (UUP) which finished +1.1% on the week. The bid-yield of December Federal funds futures has ticked 10 bps higher in August to 0.55% to close out the week.

Three for the Road

TWEET OF THE DAY

NEW VIDEO (1 MIN): Remember What Happened Last Time The #Fed Raised Rates? app.hedgeye.com/insights/53431… @KeithMcCullough pic.twitter.com/iTP0RHygEX

@Hedgeye

QUOTE OF THE DAY

“The best revenge is massive success.”

–Frank Sinatra 

STAT OF THE DAY

Will Fuller had 62 receptions for 1258 yards at Notre Dame last season.


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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