“It makes me feel the way I need to feel.”
-Snoop Dogg 

Good for Snoop, but that doesn’t work for me. That said, maybe if I smoked pot in the morning I’d come up with more creative reasons to tell you to sell growth stocks in 2017. All I’ve been able to come up with are #overbought signals.

If you know me personally, you know I don’t smoke the herb. It’s never been part of my life #process. It never will be. Whatever that makes me in the eyes of the few or the many, so be it.

The all-time highs that the US stock market (SP500) registered both intraday and on the close (2561) yesterday were smoking hot. Too hot. #Overbought hot. They made 2017 US Growth Bulls feel great!

Smoking The Highs - 07.26.2017 ATHs cartoon 

Back to the Global Macro Grind…

Whatever it is that you need to make you feel the way that you need to feel to do this job right, I encourage you to do more of that. For me it’s all about having a repeatable #process that is disciplined but is constantly evolving.

Better data, better measurement tools, etc. If it’s better than what we currently use, we’ll adopt it.

Embedded in my process are risk management tools that I use to tone down my emotions. I’m a player who needs to play this game with passion. So this part of my process has been harder than any other to implement.

But life is hard. Deal with it. Don’t whine and point fingers. Find a way to improve your game.

Doing the hard things ultimately makes me feel the way I need to feel in order to be successful. Is it hard to signal SELL some in something I like? How hard is it not to signal SELL in something I don’t like?

When it comes to forecasting GDP and Inflation, we’ve engineered our #process into one that not only “feels” nothing but has been the most accurate on Wall St. in 2017. Is it hard to say that? Yes. But it’s an accurate statement.

We’ll see how today goes, but my immediate-term #overbought signal in the SP500 from yesterday appears to be accurate (so far) too. On to the next signal now. Here’s how I’m thinking it through:

  1. PRICE: SP500’s @Hedgeye Risk Range is still quite narrow at 2
  2. VOLUME: total US Equity volume was DOWN -17% day-over-day yesterday (-12% vs. 1-month avg)
  3. VOLATILITY: @Hedgeye Risk Range for front-month VIX is narrow too at 9.29-10.65

Embedded in my #process are some simple guideline (or rules):

  1. If PRICE is #overbought on #decelerating VOLUME = easier SELL signal to act on
  2. If PRICE is ramping on #accelerating VOLUME = harder SELL signal to act on

Conversely, since the #process goes both ways:

  1. If PRICE is #oversold on #decelerating VOLUME = easier BUY the damn dip signal to act on
  2. If PRICE is #oversold on #accelerating VOLUME = harder BUY (or cover) signal to act on

Think about this within the context of a #behavorial lens. If a company misses and guides lower, its stock price might get hammered that day on #accelerating volume. That means there are:

A) More sellers than buyers
B) The sellers have more stock to sell after they sell what they can 

That’s why, rather than catching falling knives, “value” buyers should wait & watch for a stock that is crashing to settle in on both volume and volatility terms. Intermediate-term bottoms tend to be processes, not points.

Bob Marley said that “when you smoke the herb, it reveals you to yourself.” I don’t doubt he believed that!

As for me, at this stage of my career, there aren’t enough hours in the day to do what I want to do right. Revealing emotions in my process would likely kill my long-term performance. I don’t want to do that.

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

UST 10yr Yield 2.27-2.39% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 6 (bullish)
VIX 9.29-10.65 (bearish)
YEN 111.31-113.25 (bearish)
Oil (WTI) 49.57-52.83 (bullish)

Best of luck out there today,
KM

Keith R. McCullough
Chief Executive Officer

Smoking The Highs - 10.19.17 EL Chart