Tomorrow's History

“History rarely happens in accord with people’s anticipations.”
-Rebecca Spang

Did you anticipate that the world would end (politically) this year? How about a massive selloff in Tech this morning? The beauty of this game is that every day everyone gets to bet on what will be considered history tomorrow.

Karl Marx wrote that “men make their own history, but they do not make it just as they please.” Both that quote and Rebecca Spang’s aforementioned come from a book called Stuff and Money (in the time of the French Revolution).

There’s a lot of stuff to think about when risk managing your money. With US stock market volatility (VIX) down another -3% last week, it’s still in crash mode this morning at -26% YTD. SP500 futures are re-testing the all-time highs. This wasn’t in accord with a lot of people’s anticipations.

Back to the Global Macro Grind…

Since, by my definition, a 9-handle on front-month VIX suggests that the stock market has both complacent bulls and capitulating bears, this isn’t exactly a “safe spot” for equity investors.

That said, that statement is much more about the SP500 than it is either the Nasdaq or WTI Crude Oil!

In sharp contrast to the SP500, which has 30-day realized volatility of 7.4%, the Nasdaq 100 and Oil (WTI) have 30-day realized volatilities of 13.2% and 32.5%, respectively. That’s what happens when the prices of things go down. 

But really, in the context of Oil’s rout (-17% YTD), here’s what’s happened to the Nasdaq:

1. It registered an all-time closing high of 6321 on June 9^th, 2017
2. It’s corrected -2.7% from that all-time high
3. It was down -0.9% last week to +14.3% YTD (vs. the SP500 +8.7% YTD)
4. It closed just inside of my immediate-term TRADE momentum line of 6170 support
5. It remains what we call a bullish intermediate-term TREND @Hedgeye with 5975 support 

In other words, unlike the SP500, Dow, and the Russell which are signaling bullish on both my TRADE and TREND durations, the Nasdaq is bearish TRADE and bullish TREND. But that can easily mean revert back to bullish TRADE momentum, in a day.

If I break down the components of the FAANG using my price, volume, and volatility signal:

1. Facebook (FB) is bullish on both my TRADE and TREND durations
2. Amazon (AMZN) is bullish on both my TRADE and TREND durations
3. Apple (AAPL) is bearish on both my TRADE and TREND durations
4. Netflix (NFLX) is bearish TRADE and bullish TREND
5. Google (GOOGL) is bullish on both my TRADE and TREND durations

So, if you do like the sell-side does and “ex-out” what you don’t like (in this case the A that wasn’t in the FANG until they went double-A) and remove AAPL, ex-NFLX, the FANG looks fine.

Since there’s so much interest in these names, I am working on a “Daily FAANG” product that is purely a quantitative signaling product. I’d rather have Mr. Market let me know when this thing is going to break-down than some said “valuation” expert.

From a US Equity Sector Style perspective, here’s what moved the most last week:

1. Tech Stocks (XLK) led losers -1.4% on the week to +14.2% YTD
2. Industrials (XLI) led gainers +1.1% on the week to +10.4% YTD

The year-over-year growth rate for US Industrial Production Growth #Accelerated to +2.2% last week. That was a 29 month-high. Somehow these “hard” economic data points never find their way onto zero edge or the Citi “surprise” index, but I digress…

The other thing consensus was trying to say was that it wasn’t a Dovish Hike last week but:

A) The US Dollar Index was down -0.1% on the week to -4.8% YTD
B) The 10yr US Treasury Yield was down -5 basis points on the week to 2.15% and -29% YTD

That’s mainly because Reflation’s Rollover continues to make macro markets trade dovish, regardless of one’s version of history:

1. CRB Commodities Index (19 commodities) down another -2.1% on the week to -10.1% YTD
2. WTI Oil down another -2.4% on the week to -16.9% YTD
3. Coffee and Sugar prices down another -2.3% and -5.8% last week to -12.4% and -26.9% YTD

If you don’t like the coffee and sugar callout, just ignore it and look at another read-through on falling inflation expectations. The US 5-year break-even rate dropped another -13 basis points last week to 1.59%. That’s -27 basis points YTD.

I don’t know about you, but when I think about the history of this or any game, I like to think the numbers tell us a lot more about what happened than someone trying to tell us what they wanted to see happen.

Tomorrow’s history is simply going to be what the score on the board makes it.

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

UST 10yr Yield 2.12-2.26% (neutral)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6109-6339 (bullish)
XOP 30.22-33.25 (bearish)
VIX 9.79-11.47 (bearish)
USD 96.30-98.41 (neutral)
Oil (WTI) 43.59-47.30 (bearish)
AAPL 139.01-148.61 (bearish)
AMZN (bullish)
FB 147-155 (bullish)
GOOGL (bullish)

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer