“I’m chasing perfection.”
-Kobe Bryant
A great question (in both markets and in life) is what are you chasing? However “long-term” one calls themselves in this profession, every day you have an opportunity to either chase something higher … or just smile, because you bought it lower.
My inbox lit up like a Christmas tree during yesterday’s rally in the US stock market. Why? I think the Old Wall was calling it a “breakout” (2 weeks ago on a 2581 SPX close they called it a “breakdown”). Are those types of “technical” calls what you chase?
I’m genuinely humbled that our clients care about what I think during the emotional moments of up and down moves. I often thank them for that interest. I also remind them that I strive to be patient. I don’t chase.
Back to the Global Macro Grind…
Depending on how closely you’re following our #process, The Question: “Do You Chase Here?” could mean a lot of things:
- Do you press the Chinese Stock market (FXI) short post yesterday’s fresh YTD lows?
- Do you chase the Long Italian Bonds move at this morning’s YTD highs?
- Do you chase US Consumer Discretionary (XLY) stocks post a +1.9% day to +5.3% YTD?
“Believe me”, that last question and really most of the questions in my inbox relate to chasing the move in US Equities. Not a ton of our clients loved our LONG European Sovereign Bonds (Italian Bonds) vs. SHORT European Equities call on #EuropeSlowing.
On that score, before I come back to the US question, Eurozone inflation (CPI) slowed to +1.3% year-over-year in MAR vs. 1.4% in FEB. As you can see in today’s Chart of The Day, European Bond Yields peaked when European late cycle inflation peaked (i.e. last year!).
But, again, who wants to talk about the whole Global Macro picture when Macro Tourists are staring at one picture (the Dow is above the 50-day moving monkey, bro!)?
Do you chase Earnings Season?
- Great question, because so far earnings have been great!
- Minor problem: day-over-day, the growth rate of SP500 earnings slowed
- Within that problem, day-over-day, Tech earnings slowed
#Slowed, as in sequentially, day-over-day.
Is that too “short-term”? Within the context of both the questions I was getting yesterday and our research and risk management #process, absolutely not. Measuring and mapping both data and market signals, daily, is the only place we get new information!
Looking at this morning’s US Earnings scorecard (the same way we did yesterday, but with more information):
- 47 of the SP500 companies have reported
- Aggregate year-over-year EPS growth for the SP500 is now +30.0% (yesterday it was 31.4%)
- Aggregate year-over-year EPS growth for US Tech is now +46.3% (yesterday it was +63.0%!)
Before you panic on that day-over-day “slow-down”, remember that IBM is not Netflix (NFLX). And while you are remembering that both NFLX and Amazon (AMZN) are still signaling Bullish TREND @Hedgeye, Facebook (FB) and Google (GOOGL) are not.
Do you chase your long NFLX and AMZN ideas up here, or did you buy more of them when you could have on the damn dip?
If you like something, buy it at the low-end of the @Hedgeye Risk Range. Don’t give-up on something like late-cycle US consumption and wage growth (and AMZN taking share in that space) when the Old Wall Technicians and Trump are tweeting about them lower!
Do you sell some of that US Consumer Discretionary (XLY) and AMZN long exposure post the bounce?
A) You do what you do, but I absolutely would (AMZN is 20% of XLY btw)
B) When you sell-some higher, you earn the capacity to buy-some back lower
C) Wall Street is getting net LONGER after bounces – you do not want to be that consensus
As I mentioned in Monday’s Early Look, both the NASDAQ and Energy Stocks (XLE) moved back to Bullish @Hedgeye TRENDs last week. So yesterday’s ramp shouldn’t have been entirely confounding given the excellent short-squeeze NFLX “news.”
What makes “selling-some” less easy is that the SP500 got back above my @Hedgeye TREND signal level (barely) of 2701 yesterday. It’s always less easy for me to sell something on a bounce when it’s above my TREND level.
That said, I’m not your single-factor moving monkey guy, so there are multiple-factors across multiple-durations to consider when making a decision to take my gross and net exposures up and down. Two questions I always ask the process are:
- Where is the market price within the @Hedgeye Risk Range?
- What’s the options market signaling in terms of complacency and/or capitulation?
Even when I’m ragingly bullish on something like the NASDAQ like I was up until Q1 of this year, I don’t chase Bullish TRENDs when they are A) at the top end of my risk range and B) developing massive implied volatility DISCOUNTS.
I have both of those things in both the SP500 and NASDAQ this morning:
A) Top end of the SP500 and NASDAQ @Hedgeye Risk Ranges are published daily at the bottom of the Early Look
B) The implied volatility DISCOUNTS (vs. 30-day realized) for the SP500 and NASDAQ are -43% and -37%, respectively
If you haven’t thought about the complacency and/or capitulation embedded in implied volatility PREMIUMS sequencing into DISCOUNTS after markets bounce to lower-highs on decelerating volume, I think you should.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.75-2.86% (bullish)
SPX 2 (bullish)
NASDAQ 6 (bullish)
Energy (XLE) 68.91-73.69 (bullish)
VIX 14.62-23.29 (bullish)
USD 88.80-90.10 (neutral)
Oil (WTI) 62.12-69.00 (bullish)
AMZN 1 (bullish)
FB 153-170 (bearish)
GOOGL 1001-1085 (bearish)
NFLX 304-340 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
