“History, I like to think, is a larger way of looking at life.”
-David McCullough
One of my favorite authors, David McCullough, recently published a collection of his most important American History speeches in a 2017 book that he titled The American Spirit. If you want to feel great about living in this country, read it into summer’s end.
I don’t know about you, but I feel absolutely fantastic about both US #Growth & #Profits Accelerating in 2017. With so many people who are a lot smarter than me whining for the last 8-9 months, I sincerely wish they were winning instead. Life is better that way.
The best part about this epic ramp to an all-time-closing-high (SP500 = 2480) is that we reserved the unalienable right, freedom, and liberty to sell into it yesterday too. Booking gains, I like to think, is a larger way of mitigating risk than opining on “valuation.”
Back to the Global Macro Grind…
Since our profession is becoming shorter-term in its demands, I find myself spending a lot of time writing about executing, tactically, on my research and risk management #process and less about the three principle pillars of the process, but they remain:
- History
- Math
- Behavior
History is the longest standing. If there is a historical time-series for data and market prices, we’ll find it. But history, as David McCullough reminds us, “is also human. It is about people, and they speak to us across the years.”
Using modern math (multi-factor, multi-duration models with predictive tracking algos to measure and map rates of change) is obviously critical to our process, but failing to acknowledge that human nature isn’t linear or “rational” is purely behavioral.
That’s why so many pundits fail when trying to call market tops and bottoms using “valuation” as their primary reasoning. Their starting point is what would score well on a standardized test, not what would make and save them money in the real world.
If you want to become famous for calling tops and bottoms, go on TV. “Believe me”, they’ll let you try it, daily.
Back in #timestamped space, since tops and bottoms (in both economic cycles and market prices) are processes, not points, this is how I make a decision to “sell-into” an all-time-high like I did yesterday:
- Measure where the market’s PRICE has moved within my immediate-term @Hedgeye Risk Range
- Measure both the VOLUME and VOLATILITY signals embedded in that market’s price
- Map pending market CATALYSTs that could push the top-end (or bottom-end) of the range higher/lower
Then I lick my finger, hit the send button, and pray.
Kidding on the finger point, but I do hit buttons for transparency and accountability purposes (#timestamps) and prayer is more a part of my life’s constantly evolving process than anything else. I’ve lived a very fortunate life, and am humbled by that.
Circling back to yesterday’s signals (I issue them daily with my Real-Time Alerts service):
- SP500: the top-end of my immediate-term @Hedgeye Risk Range = 2483
- Total US Equity Market Volume (including dark pool) was +3% vs. its 1-month average yesterday
- VIX: the vol of volatility isn’t signaling that the VIX closes much below its all-time low of 9.31
Then, when I look at the sub-sector styles within the SP500:
- TECH (XLK): remains our favorite sector but is signaling immediate-term TRADE overbought at +19.9% YTD
- ENERGY (XLE): remains our least favorite sector and it signaled immediate-term TRADE oversold at -13.5% YTD
- Oil and Nat Gas signaled immediate-term TRADE oversold within their respective bearish TRENDs too
In other words, if I was running a hedge fund again:
A) My longs were overbought
B) My shorts were oversold
When that happens, the playbook of the process says you simply book some gains and raise cash so that you can re-invest on pullbacks to the low-end of the range in whatever it is that you might like at lower prices.
Sound simple? Your process should be. It’s a lot easier having one that is rules-based (with driver discretion) than whining to the world every day that “oh, it’s going to happen – you just wait.”
That sounds more like guessing to me. I study. I measure… and I map. I don’t guess.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.22-2.34% (neutral)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6 (bullish)
DAX 12071-12356 (bearish)
VIX 9.31-10.79 (bearish)
USD 92.39-94.28 (neutral)
Oil (WTI) 46.63-50.31 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
