“Papa, potatoes, poultry, prunes and prism, are all very good words for the lips.”
-Charles Dickens
Our boy Bill Dudley (head of the NY Fed) was back in the Old Wall Media yesterday. This time he called the recent move in the US stock market “small potatoes”… and the market proceeded to get hammered into the close after that.
What comes out of any major central market planner’s mouth can obviously matter. Going all the way back to when he was a Goldman economist (I was on the buy side back then), Dudley’s “market” call has never really mattered.
The Question this morning is who are you going to listen to? If you’re willing to turn off the mute button, you can hear the dude from Shark Tank @CNBC tell you about the market open. Alternatively, you can listen to nothing but Mr. Market. He talks in numbers.
Back to the Global Macro Grind…
A grind this week has been. The #1 Question in my inbox both last night and this morning is “has anything changed your view?”
A: Yes. Everything is always changing my view!
If you have a dynamic and data dependent #process like mine (fundamental research combined with quantitative risk management signals), your views should change if either:
A) The fundamental growth, inflation, and/or profit cycle data changes … or
B) Market PRICE, VOLUME, and VOLATILITY signals change
Since we’re rate of change bearish on both the fundamentals and quantitative signals in countries like China and Spain, we have helped you not suffer through the -12-13% draw-downs in those equity markets from recent peaks.
#GlobalDivergences remains a Top 3 Global Macro Theme @Hedgeye. That view has not changed.
On the USA, we had an interesting dynamic going into yesterday’s US stock market open with:
A) The Nasdaq and SP500 still signaling Bullish TREND @Hedgeye … and
B) The Russell 2000 signaling Bearish TREND @Hedgeye
So, the answer to The Question is that something big was already changing in my views… and then something else changed, abruptly, within 3 hours of trading into the close on a previously held view:
- The SP500 broke @Hedgeye TREND intermediate-term support of 2665
- The NASDAQ broke @Hedgeye TREND intermediate-term support of 6951
Before you freak out and go to cash, take a deep breath and remember that in the next 3 hours of trading and/or in the next 3 days for that matter, these critical signal levels can be recaptured.
What if they aren’t?
Well, then our risk management process has to probability weight whether or not long-term TAIL risk to the US equity market is in play. In my proccess’ vernacular, the TAIL is a longer-term duration than the intermediate-term TREND. On that duration:
- SP500 TAIL support = 2553
- NASDAQ TAIL support = 6402
Write those down (I did). And breathe…
Note that I haven’t said anything in “my view” has explicitly changed from a fundamental GROWTH, INFLATION, or PROFIT cycle perspective. That said, here’s the update on that front:
- Our predictive tracking algo has Q118 US GDP Growth #accelerating to a cycle high of +2.71% (that imputes +2.06% q/q SAAR)
- Our predictive tracking algo has Q118 US inflation (CPI) #slowing to +1.78% vs. +2.12% in Q417
- Aggregate SP500 and NASDAQ EPS is currently running +14% and +18% year-over-year, respectively #EarningsSeason
If you want to nit-pick at what Mr. Market may be signaling, you might say he’s thinking the peak of the US GDP cycle is about to be in. You might also say that Hedgeye having the lowest headline q/q SAAR number for US GDP on Wall Street is new and bearish.
I don’t disagree with either of those thoughts (mainly because they are my own!). Neither do I disagree with myself that we’re going to see the #1 fear factor in the market (inflation accelerating) rollover in the coming months.
Lots to think about? Heck yeah. That’s why one’s “view” should never be about 1 thing, 1 duration, or 1 “valuation”… it should always be about everything. That’s no small potatoes to measure and map every day either.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.67-2.89% (bullish)
SPX 2 (bullish)
Russell2000 1 (bearish)
NASDAQ 6 (bullish)
Biotech (IBB) 102-120 (bullish)
RMZ (REITS) 1001-1075 (bearish)
Nikkei 210 (bearish)
DAX 12105-12835 (bearish)
VIX 12.98-40.60 (bullish)
USD 88.28-90.37 (bearish)
EUR/USD 1.22-1.25 (bullish)
YEN 108.31-110.28 (bullish)
GBP/USD 1.38-1.43 (bullish)
Oil (WTI) 60.54-67.08 (bullish)
Nat Gas 2.51-2.96 (bearish)
Gold 1 (bullish)
Copper 3.03-3.13 (bearish)
AAPL 151.99-167.18 (bearish)
AMZN 1 (bullish)
FB 169-183 (neutral)
GOOGL (neutral)
NFLX 241-287 (bullish)
TSLA 305-337 (bearish)
Bitcoin 6302-10,256 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
