“So you begin by observing, carefully.”
-Benoit Mandelbrot
Worried about North Korea this morning? How about Trump? What about more important things like Earnings Season no longer being an immediate-term market catalyst and/or the Nasdaq signaling lower-highs?
Instead of macro research that suggests what markets should be doing (on “valuation”), most good macro market risk managers of the modern era have been intensely focused on what markets are actually doing.
Just looking at the surface of a market’s price is lazy. Measuring and mapping big mathematical factors like the 2nd derivative changes in both volume and volatility is critical. You should be observing and contextualizing with both discipline and rigor.
Back to the Global Macro Grind…
Wait, did I just write that that Nasdaq is signaling lower-highs? I really didn’t have to write it. Since I publish my 3-factor (price, volume, volatility) @Hedgeye Risk Range daily, you’ll have noticed that that “call” on the market is already a week old.
And it’s not just the Nasdaq that is signaling lower-highs vs. its all-time closing high of 6422:
- The SP500 is signaling lower-highs with a @Hedgeye Risk Range of 2
- The Russell 2000 continues to signal lower-highs within a bearish @Hedgeye TREND
- The Nikkei, DAX, CAC, IBEX, etc. (all major country indices) are signaling bearish @Hedgeye TREND too
To be crystal clear on this, just because something is signaling lower-highs in the immediate-term doesn’t mean it’s going to become a bearish intermediate-term TREND @Hedgeye.
That said, mathematically speaking, the only way to measure and map a topping process and the RISING probability that a market price moves from bullish-to-bearish TREND is via the observation of lower-highs.
Unlike the many macro market strategists who have come before me, I am humbled and honored to be able to live in today’s observation period if only because I get to measure and map market risk from the all-time highs.
All-time, remains a very long time…
And, unlike many of the economists (and strategists) who had you “Buy Europe” as major European Equity markets were signaling lower-highs in May through July of 2017, our risk management process got you out.
The #process also got you out of both Japanese Equities and levered US small caps (Russell 2000). Like I said, the Nikkei, German DAX, French CAC, and Spanish IBEX are bearish TREND with the following draw-downs:
- Japan’s Nikkei was down -0.5% overnight and -3.9% from its June 2017 high
- Germany’s DAX was -2.0% on the open this morning and is -8.0% from its June 2017 high
- France’s CAC40 was -1.6% on the open this morning and is also -8.0% from its May 2017 high
- Spain’s IBEX was -1.4% on the open this morning and is -8.8% from its May 2017 high
- Russell 2000 was +0.4% yesterday and is -4.7% from its JULY high
Put another way, even though the Russell has sucked wind vs. something like the SP500 (post yesterday’s close SPX was -1.4% from its all-time closing high of 2480), it’s had a lot less draw-down risk than German, French, and Spanish stocks have.
Meanwhile, in other fake and/or ignorant and unaware “news”, I loved this Old Wall Media headline from late last week: “World’s major economies in sync for the first time in years.” Lol.
While the words “in sync” and “first time in years” mean literally nothing to me from a process perspective, of the few economists who have been Bullish Enough on US Growth in 2017, most of them think it’s due to “global growth being back!”
As a reminder, our current “major economy” calls are:
A) #ChinaSlowing
B) #EuropeSlowing
C) #USAccelerating
All the while, in addition to our bearish @Hedgeye TREND views on Japanese, German, French, Spanish, Italian, and Portuguese cyclical equities (think bank stocks sensitive to long-term rates falling, again, as Japan and Europe = #SlowerForLonger)…
Our macro model continues to signal bearish TREND and TAIL risk on big macro factors affected by Reflation’s Rollover:
- CRB Commodities Index = bearish TREND
- Oil & Natural Gas = bearish TREND
- Ag (Corn, Wheat, Soy, etc.) = bearish TREND
In summary this all begs a simple question this morning: are the lower-highs being signaled in both the Nasdaq and SP500 leading indicators that the peak in headline US growth (which we’ve always had as Q317), is fully priced in?
Oh boy, the answer to that question is going to have my two-feet on the floor at the top of the risk management morning for days, weeks, and months to come. Observing the Global Macro Matrix carefully, has no short-cuts from North Korea.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.08-2.23% (bearish)
SPX 2 (bullish)
RUT 1 (bearish)
NASDAQ 6180-6346 (bullish)
Nikkei 192 (bearish)
DAX 115 (bearish)
VIX 9.78-15.39 (bearish)
EUR/USD 1.17-1.20 (neutral)
YEN 108.25-110.49 (bullish)
Oil (WTI) 46.05-47.87 (bearish)
Nat Gas 2.78-3.01 (bearish)
Gold 1 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
