“Millions saw the apple fall, but Newton was the one who asked why.”
-William Hazlitt
Despite many betting that Apple (AAPL) would fall last night, it did not. That shouldn’t surprise anyone who has been bullish on it this year. But how many of the bears have objectively checked their #process on why both it and the FAANG won’t crack?
Ironically enough, I spent all of yesterday sweating through a suit in The Big Apple. There’s nothing quite like going from office building to office building in New York City on a sauna of an August summer day. And I liked it.
Actually, I loved it! Meeting with Institutional Investor teams is easily one of my favorite parts of this profession. Having the privilege to hear what the world’s brightest minds are thinking is priceless. I’ll always love The Debate.
Back to the Global Macro Grind…
I used to think (mainly because a few of my bosses did) that the super small sample size of New York investors we chummed around with gave me insight into what consensus was. That was 15-20 years ago. Now I know better.
Consensus isn’t what you tell your boss it “felt like at an idea dinner.” Neither is it an Old Wall macro firm handing out trivial one-page surveys to a dozen investors at an over-priced lunch in Mid-town.
At a bare minimum, a better way to define Consensus Macro is A) where the market is positioned (net long or short) and B) what its implied expectations are, across durations, relative to the last market price.
In the “Sentiment Screeners” we build @Hedgeye, some of the other factors we measure and map are:
- Buy-side ownership
- Short Interest
- Sell-side ratings
- Hedge Fund concentration
- Insider buys/sells
Any good fractal-student of markets knows that if you’re not refreshing price, volume, and volatility data every market day (for me, multiple times per day) that you run the risk of missing material changes in consensus positioning.
Especially when heading toward what we call “event risk” (i.e. a date on the calender where something tangible, like say earnings, is going to be reported), the measuring and mapping of it all becomes mission critical.
Looking at the apple of the Mr. Market’s eye this morning, this was the price, volume, and volatiluty setup:
- PRICE – the low-end of AAPL’s immediate-term @Hedgeye Risk Range was around $148
- VOLUME – AAPL’s was not accelerating during the short-term correction into the earnings event
- VOLATILITY – AAPL’s implied volatility ramped to a +76% PREMIUM vs. 30-day realized
When a stock’s price corrects to the low-end of my risk range and prices in a lot of “protection” (options market) without a commensurate spike in volume, that tells me a lot about positioning and sentiment.
On volume, if someone actually knew something (illegal, yes – but someone always knows something), volume has a central tendency to accelerate on an up or down move into an event.
On implied volatility, especially with the Nasdaq 100 and its top YTD performers, consensus has been doing a lot more “protecting” against potential corrections than it has betting on price ramps.
Isolating another FAANG component in particular, look at what just happened with Netflix (NFLX):
- Into the earnings event, price was correcting on #decelerating volume
- As price corrected, an implied volatility PREMIUM of +37% (vs. 30-day realized) mounted
- Post the EPS event and massive price spike (on #accelerating volume), implied volatility got smoked
Pre-market open today, Netflix (NFLX) now has an implied volatility DISCOUNT of -36%. Think about that and how it came to be. I certainly didn’t have to be Newton to ask why!
From NYC to London to Dallas and Denver. We’ll fly anywhere, anytime. We’ll slap on our risk management suits under any “over-valued” or crashing market condition and do our best to help you improve your process.
After all, the collective knowledge and collaboration of our Institutional Investor network is what ultimately helped us evolve to where we are today. And, God willing, we’ll continue to improve, together, for many years to come.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.24-2.34% (neutral)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6 (bullish)
VIX 9.17-10.86 (bearish)
USD 92.50-95.03 (neutral)
EUR/USD 1.15-1.18 (neutral)
Oil (WTI) 45.19-50.88 (bearish)
AAPL 147.90-153.96 (bullish)
AMZN (bullish)
FB 162-173 (bullish)
GOOGL (bullish)
NFLX 177-193 (bullish)
TSLA 311-337 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
