“Yes. Lick’em tomorrow, though.”
-General Ulysses S. Grant
That’s what a young and emerging General Grant said in response to General William Sherman after Day 1 of The Battle of Shiloh in 1862. “Well Grant, we’ve had the devil’s own day haven’t we?”
And that they did.
“The staggering number of casualties for the 2-day battle was 23,746. Union casualties was more than Bull Run, Wilson’s Creek, Fort Henry, and Fort Donelson put together. Up to that time, Shiloh was the largest battle in American history.” (American Ulysses, pg 221)
Back to the Global Macro Grind…
No. I didn’t tell you to chase either stocks or bond yields higher at last week’s highs. I said sell-some, on the news. And no, this isn’t a sacrificial war of American casualties. This is just an epic bulls vs. bears market battle.
Yes. Buy’em tomorrow, though.
Well, maybe not literally tomorrow… but whenever US stocks (and the 10yr Yield) hit the low-end of my immediate-term risk range will be tomorrow enough for me. I’ve bought every damn dip for over 4 months now, and I’ve liked it.
Recapping last week’s Reflation Rally is pretty straightforward:
- Dollar Down (on the “dovish hike”) news = -0.9% week-over-week for the US Dollar Index
- Rates Down on the hike news = -8 basis points on the US 10yr Treasury Yield
- Stocks Up for the 7th out of the last 8 weeks with Tech and Reflation Sectors leading
That’s right. Some of the style factors and macro exposures that led the US stock market higher last week aren’t what I’d expect to see going forward. From an intermediate-term TREND perspective, I still expect Dollar Up, Rates Up, Stocks Up.
From a US Sector Style perspective, that’s not what happened last week:
- Financials (XLF) were down -1.3% week-over-week with rates down
- Utilities (XLU) were up +0.5% week-over-week (they like rates down)
- Tech (XLK) was up another +0.4% week-over-week, not trading on rates at all
The Tech move (or the ramp in the Nasdaq for that matter) continues to look precisely like Quad2, whereas the Fins vs. Utes Battle looks a lot more like Wall Street’s (and the Fed’s) growth expectations vs. our own – i.e. not Bullish Enough.
So the 1st US Sector Style you should expect me to come back to on the long side is The Financials (XLF). They actually got close to signaling immediate-term TRADE oversold within their bullish intermediate-term TREND on Friday.
And what signaled immediate-term TRADE overbought last week?
- The Russell 2000 (it was +1.9% in a straight line squeeze)
- Copper at +3.7% week-over-week on the Reflation Rally
- Spanish Stocks at +2.4% week-over-week (also in a straight line squeeze)
Talk about getting licked! Imagine being short US, Japanese, and/or European stocks here in FEB-MAR 2017? Ouchy.
Since we were as loud as I’m going to get on buying the Russell lower (Russell Growth really), that one is an easy “sell-some” on the ramp (then buy-some back on the next correction), I’ll keep that on my buy list and consider shorting commodities now.
That’s the thing about “Buy’ing Em Tomorrow”…
If I’m long US growth, I’m definitely not buying Long-term Bonds (I’m shorting them)… and if I think Reflation’s Peak is in here in Q1, I’m not buying “Commodities” and/or their related equity exposures on down days either…
So the buy-list remains what it’s been – focusing on US Growth (IWO), Financials (XLF), and Tech (XLK), with the rank/order being more about buying opportunities than “valuation.” If the plan is to buy’em tomorrow, you know I’d love to see them on sale.
Our immediate-term Global Macro Risk Ranges (with TREND views in brackets) are now:
UST 10yr Yield 2.46-2.65% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 5 (bullish)
Nikkei 195 (bullish)
VIX 10.70-12.28 (bearish)
USD 99.75-102.25 (bullish)
EUR/USD 1.04-1.08 (bearish)
Oil (WTI) 46.35-49.61 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
