“Listen to a great player describe what he does… and you will get back something frustratingly unrewarding.”
-Ken Dryden

“Ask Lafleur or Orr, ask Reggie Jackson, or Julius Irving what makes them special… they are inarticulate jocks, we decide, but in fact they can know no better than we do. For ask yourself how you walk, how your fingers move on a piano, how you do any number of things you have made routine, and you will know why.”The Game, pg 155

In a world that’s becoming increasingly frustrated with not being told the unbiased and objective reality of it all, isn’t that the truth?

What is your process? Fortunately, in our profession, explaining the truth about what it is that we do to has never been more important. Great money managers can explain their investment process. Most of them listen to Mr. Market too!

Listen To A Great Player - kendryden

Back to the Global Macro Grind…

It’s Day 1 of the work week and that means nothing but a block and tackle #process day for The Macro Team @Hedgeye Risk Management. Today is the day that we contextualize last week’s macro moves within intermediate-term TRENDs.

Put simply, last week looked like this: Dollar Down, Stocks Up, Oil Up, Rates Up. Here are the line items on that:

  1. US Dollar Index was down another -1.1% last week and remains Bearish TREND @Hedgeye
  2. SP500 was up another +1.6% to another all-time high last week and remains Bullish TREND @Hedgeye
  3. Nasdaq was up another +1.7% to another all-time high last week and remains Bullish TREND @Hedgeye
  4. Russell 2000 was up another +2.0% to an all-time high last week and remains Bullish TREND @Hedgeye
  5. Oil (WTI) was up another +4.7% last week and remains Bullish TREND @Hedgeye
  6. US Treasury 2-year Yield was up another +4 basis points last week and remains Bullish TREND @Hedgeye
  7. US Treasury 10y-year Yield was up another +7 basis points last week and remains Bullish TREND @Hedgeye

While many spent most of September whining about the “Yield Curve Flattening” we tried to tell you to listen to Mr. Market’s message which was much more bullish than that:

Oil Up = UST 2yr Yields Up on reflation expectations rising on the short-end of the curve!

If the UST 10yr Yield was falling week-over-week and breaking bad (it wasn’t – it rose from 2.05% to 2.55% since SEP) into what we call a Bearish TREND @Hedgeye, then I’d have been concerned about the sustainability of US growth. But it didn’t.

Instead, if you look at the US Stock market in Sector Style terms, both Reflation Beta and Real US #GrowthAccelerating continues to pound slower-growth-yield-chasing sectors:

  1. Consumer Discretionary Stocks (XLY) were up another +3.2% last week and remain Bullish TREND @Hedgeye
  2. Energy Stocks (XLE) were up +3.3% last week and remain Bullish TREND @Hedgeye
  3. Utilities (XLU) were down another -2.1% last week and remain Bearish TREND @Hedgeye
  4. Consumer Staples were down -0.5% last week and are Neutral TREND @Hedgeye

If you want to look at it in US Equity Style Factor terms, the message from Mr. Market was the same:

A) High Beta Stocks were up another +3.4% last week and remain Bullish TREND @Hedgeye
B) Top 25% Sales Growers were up another +2.3% last week and remain Bullish TREND @Hedgeye
*Mean performance of Top Quartile vs. Bottom Quartile, SP500 Companies 

Looking for short ideas? There were #Divergences last week in Global Equities:

  1. The German DAX was down -0.6% last week
  2. Swiss Stocks were -0.1% last week
  3. South Korean Stocks were -0.3% last week

All three of those markets are still Bullish @Hedgeye TREND, but barely. Being long US Growth & Reflation stocks has been much more profitable as of late.

Another major asset class that signaled #Divergences last week was Commodities vs. Oil:

  1. Copper corrected -0.2% last week and remains Bullish TREND @Hedgeye
  2. Corn was down another -1.4% last week and remains Bearish TREND @Hedgeye
  3. Wheat was down another -2.4% last week and remains Bearish TREND @Hedgeye
  4. Coffee was down another -4.8% last week and remains Bearish TREND @Hedgeye
  5. Sugar was down another -6.0% last week and remains Bearish TREND @Hedgeye

So if you have friends talking up “commodities” as an asset class this year, make sure to fact check them on what commodities, specifically, they mean by “commodities.” Plenty of commodities are still collapsing in price, despite Down Dollar.

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

UST 10yr Yield 2.45-2.59% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 7136-7286 (bullish)
Biotech (IBB) 108-113 (bullish)
XOP 37.82-39.99 (bullish)
RMZ 1088-1141 (bearish)
DAX 13001-13548 (bullish)
VIX 8.90-10.39 (bearish)
USD 90.50-92.48 (bearish)
Oil (WTI) 60.25-64.97 (bullish)
Gold 1 (bullish)
Copper 3.17-3.30 (bullish) 

Best of luck out there this week,
KM 

Keith R. McCullough
Chief Executive Officer

Listen To A Great Player - 01.16.18 EL Chart