Editor's Note: Below is a brief excerpt from today's Early Look written by Hedgeye CEO Keith McCullough explaining why the "Nasdaq has been signaling lower highs." At the bottom of this post you'll find a brief primer on our Daily Trading Ranges and how they inform our macro process.
... 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
- 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.
About Keith's Daily Trading Ranges
This quantitative trading range tool was developed by our CEO Keith McCullough during his years as a hedge fund manager to augment his team’s qualitative research views. The idea is simple: Create a quantitative risk management tool to help investors actually buy low and sell high.
The model uses three core inputs – price, volume and volatility – to determine the likely daily trading range for any publically-traded asset class. Again, it’s simple. You sell at the top end of the range and buy at the low end.
Keith’s quantitative model is also multi-duration meaning it dynamically adjusts to suggest critical thresholds – over our TREND and TAIL durations (see below) – after which, upon breaching these levels, an asset flips from bullish to bearish or vice versa.
- TRADE = 3 weeks or less
- TREND = 3 months or more
- TAIL = 3 years or less