• Badge

    A Decade of Revolution Declare Your Research Independence

Editor's Note: Below is a complimentary Early Look (our morning market newsletter) written by CEO Keith McCullough on April 5, 2018 telling Hedgeye subscribers to "sell the bounce" in U.S. equities. Here's the backstory... 

Heading into 2018, we had been telling subscribers to "buy the dip" in stocks. U.S. #GrowthAccelerating had been firm backstop for domestic equity investors for six consecutive quarters.

By early March though, we were warning subscribers that the stock market was signaling lower-highs. It was beginning to price-in our call on slowing U.S. growth, decelerating earnings growth and declining inflation expectations.

Yes, timing matters.

(Get the Early Look today and save 25%.)

FLASHBACK 4/5/18 | McCullough: 'On the Bounce. Sell’em If You Got’em' - el sellem

THE BIG PICTURE

Yep, I’m going with Edison in the lead-off spot for back to back days in the Early Look. In both US and Global Equity markets, you’re getting another selling opportunity at lower-highs this morning too. 

Are less-concerning-tariffs the new bull case? Since they were never a major part of our #PeakCycle USA or Global #Divergences calls, I have to admit that I’m licking my bearish chops looking at a large crowd of complacently tasty Macro Tourists this morning.

During Bearish @Hedgeye TRENDs, it’s not what you do on the gaps lower that matters as much as how to reset your gross and net exposures on bounces. Mr. Market is a generous fellow. He often gives us plenty of time to check our fundamental premise and adjust. 

MACRO GRIND

It’ll be Day 2 of 3 for Darius Dale, Josh Balch, and I in Boston. Yesterday was a great one as we were able to get immediate, face to face, feedback on our fresh content. Our Q2 Macro Themes deck is loaded with changes to what were 15 month old views. 

One of the few late-cycle US growth views we’ve kept is LONG US Consumer Discretionary (XLY). I verbalized the debate within my own mind on this position in yesterday’s rant, but there real-time updates on that Sector Style as of this morning: 

  1. US Consumer Discretionary (XLY) stocks led the bounce yesterday at +1.8% on the day
  2. US Consumer Discretionary (XLY) stocks are still the #1 Sector performer at +2.9% YTD
  3. US Consumer Discretionary (XLY) has a catalyst in tomorrow’s late-cycle US jobs report 

Essentially, that’s the point about our USA #PeakCycle Theme. In the US, it’s an open question how long late-cycle can last. In Europe, there’s a sea of red in rate-of-change data (Services PMIs) again this morning that makes seeing Europe’s 2017 cycle peak easier. 

That’s the thing about peaks. Whether you are looking back at them in either a time-series of economic data or in a stock market chart, they become clearer as time goes by. 

So you’re on the clock, KM. It’s time for your “picks.” 

“When do you call for a peak in the last US growth exposure you’re willing to stay with?”

I used to answer a question like that with much more certainty (and have much less accuracy as a result) as a younger man. But I think that’s because my boss paid me too much money to have “conviction.”

Now, I’m just an aging bull who is waiting on Mr. Market to give me the all-clear fountain of youth sign. There’s nothing quite like being re-born, as a bear! 

Don’t worry, I’m not hedging any of the following explicitly bearish calls: 

  1. Short European Stocks
  2. Short China and/or Asian EM Stocks linked to China
  3. Short Industrials (XLI) 
FLASHBACK 4/5/18 | McCullough: 'On the Bounce. Sell’em If You Got’em' - 11.15.2017 southern Europe cartoon

Interestingly, shorting Global Industrials and/or those listed in the USA (ETF = XLI) wasn’t as hotly debated in Beantown yesterday as Long Consumer was. Why? Maybe it’s less debatable? Being long those exposures have certainly sucked some serious wind YTD.

That makes this LONG/SHORT pair one way to summarize all of our Macro Themes into two US Sector exposures: 

A) Long Consumer Discretionary (XLY) up +2.9% YTD
B) Short Industrials (XLI) down -2.1% YTD
= +500 basis points of performance YTD 

Obviously being long anything that is UP YTD in the US beats anything that’s going on from a trending major Global Equity Index perspective (China, Japan, Germany, etc. all DOWN YTD). 

And the goal is for your longs to actually be UP, eh! 

But again, I don’t want to be pounding the table on the long side of a US Equity Growth exposure like Consumer Discretionary (XLY) AFTER it rallies on decelerating volume to yet another lower-high like we saw yesterday. 

The real pounding you’re going to get from me is that ole school overalls style: hammer and nail, rinse and repeat, #process. Every day we’re going to outwork our competition to be sure we don’t have you long a country, sector, or exposure that’s going to get pounded. 

It’s right back to the wood on this bounce this morning. Sell’em if you got’em. Global #Divergences, Reiterated. 

OUR LEVELS

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

UST 10yr Yield 2.70-2.87% (bullish)
SPX 2566-2673 (bearish)
NASDAQ 6809-7189 (bearish)
DAX 11703-12277 (bearish)
VIX 17.16-25.45 (bullish)
Gold 1315-1358 (bullish)
Copper 2.95-3.08 (bearish) 

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer

FLASHBACK 4/5/18 | McCullough: 'On the Bounce. Sell’em If You Got’em' - 04.05.18 EL Chart

FLASHBACK 4/5/18 | McCullough: 'On the Bounce. Sell’em If You Got’em' - twitter Early Look promo image