Overreacting in America?

“There’s no such thing as overreacting in Russia.”

-Bill Browder

The Russian stock market has lost over -10% of its value in the last month. I don’t think that’s an overreaction. I just think that’s what an equity “allocation” that is illiquid like that (and levered to Oil) should do during Reflation’s Rollover.

While what you think markets should or should not do in America this year may or may not have surprised you, that’s what makes a market. If anything, fully loaded with the political gong show of the punditry, this market has been a lot of fun in the 1^st half of 2017.

Did people who shorted US Biotech stocks in January 2017 overreact to “Trump’s tweets”? How about people who capitulated and covered Biotech (IBB) at +20.6% YTD into the close yesterday? Evidently, the answer to both of those questions is yes.

 

Back to the Global Macro Grind…

The divide between capitulation and complacency is wide, if only because both bull and bear camps are positioned opposite to one another. After markets go up, volatility crashes, and bulls get complacent inasmuch as bears capitulate.

That’s what makes a market too.

That’s why I’m intensely focused on measuring and mapping quantitative market signals, across durations, like Risk Ranges, Implied Volatility, and Net Positioning.

“Believe me”, I’ve paid the price for overreacting as both a bull and a bear. These tools help me make less short-term mistakes.

One mistake people made at last week’s lows in the Nasdaq was obviously extrapolating their “Expensive Stock” fear into shorting High Beta Tech and Healthcare stocks. Both low and high beta components of those Sector Styles have ramped higher this week.

Before I get into the epic Healthcare move, let’s review our Daily FANDANGO signal within the context of @Hedgeye TREND:

1. ORCL 48.49-51.57 (bullish TREND)
2. NVDA 147-162 (bullish TREND)
3. Dow Bro 21,211-21,562 (bullish TREND)
4. AMZN (bullish TREND)
5. FB 150-155 (bullish TREND)
6. GOOGL 952-987 (bullish TREND)
7. AAPL 142.04-148.58 (bullish TREND)
8. NFLX 149-156 (bullish TREND)

Oh no you didn’t, Mucker (that’s with an M, please). You didn’t change the FANG into something new, did you? Oh yes I did. Let me know if you’re into it or not. I can always revert to being less creative.

By the way, in case you care, I rank ordered those names into ONDAFGAN from 1^st to worst in terms of what’s more of a bullish intermediate-term TREND signal than the others. The point is that they are all still signaling bullish TREND.

Back to the Biotech buzz that every price momentum bro just had to chase… our Healthcare Policy Expert, Emily Evans, is going to host what we call a “Flash Call” on Repeal & Replace at 9AM EST. Ping if you’re interested.

Our Healthcare Long/Short Guru, Dr. T (Tom Tobin), will also be on the call covering the following topics/tickers:

• Status quo for Medicaid expansion for three years with three year phase-down of expansion funding - Short term positive but long term negative for hospitals: HCA, CYH, THC, LPNT; Medicaid Managed Care: MOH, CNC, UNH,
• Transforms the Medicaid program from an open-ended entitlement to a per capita or block grant financing system - Long term negative for hospitals, skilled nursing facilities: KND, ENSG, GEN
• Permits increased flexibility for states to revise their Medicaid programs and reduces administrative burden of Section 1115 waivers by making those permanent under certain circumstances - Long term positive for MOH, CNC, UNH
• Sends buckets of money to states to create parity between expansion and non-expansion states; stabilize insurance markets and provide funding for innovations - Short term positive for insurers: ANTM, UNH, HUM, AET
• Brings more oversight to Medicaid program - Short and long term negative for Medicaid Managed Care Organizations: MOH, CNC, UNH
• Funds Cost Sharing Reduction payments through 2019 but repeals the program beginning in 2020 - Short term positive for insurers: ANTM, UNH, HUM, AET and hospitals: HCA, CYH, THC, LPNT
• Makes available tax credits for people living at 0%-350% of poverty depending on age
• Amends the Medicaid inpatient mental disease (IMD) exclusion to permit inpatient care for 30 days for opioid addiction treatment and up to 90 days a year - Long term positive for mental health and substance abuse treatment: AAC, AHCH, UHS

Yep. That’s a lot. But, if you don’t want to “overreact” (like consensus does) to major market moves in the Healthcare space, you’re going to need an all-star independent research team that isn’t emotional or political to help you understand it.

There is such a thing as not overreacting in American markets. We call it patient, risk managed, research.

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

UST 10yr Yield 2.12-2.22% (neutral)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6170-6282 (bullish)
VIX 9.93-11.38 (bearish)
USD 96.70-98.10 (neutral)
Oil (WTI) 41.90-44.53 (bearish)
Gold 1 (bullish)
Copper 2.54-2.67 (neutral)

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer