“Periods of big price changes group together, interspersed by intervals of more sedate variation.”
-Benoit Mandelbrot
Did you take advantage of yesterday’s immediate-term #oversold signals in both US and Global Equity markets? As importantly, prior to the move, did you take advantage of any of the 6 all-time closing highs the NASDAQ made in June and book some gains?
‘What? Buy low and sell high? My “rules based” risk manager tells me I have to start hedging on the down moves and get net “longer” on the up moves. You just don’t get what we do, KM.’
Oh but I do. I used to have a boss too, don’t forget. And while I don’t run other people’s money anymore, I quite like running my own in a macro market like this where volatility clusters provide tremendous opportunity to take advantage of big price moves.
Back to the Global Macro Grind…
Not to get into the details of my P.A. (personal account) but I’ll readily admit that I bought both the Nasdaq via QQQ yesterday and sold a bunch of puts. I don’t know if I’ll make money, but I know why I made those moves when I made them.
I also know why I didn’t buy the QQQ’s higher last week. There’s an implied risk management #process in either NOT buying at the top of the @Hedgeye Risk Range and/or selling up there.
Up there btw was WAY up there. Again, to review what you could have sold into on strength in June:
- NASDAQ registered 6 all-time closing highs in June of 2018
- RUSSELL 2000 registered 7 all-time closing highs in June of 2018
- US GDP GROWTH is registering its record 8th consecutive quarter of year-over-year #acceleration in June (Q2) of 2018
For the intermediate-term @Hedgeye TREND to longer-term @Hedgeye TAIL investor, riding US GROWTH #accelerating as a major Factor Exposure and buying every damn dip along the way has paid the bills and kept us all in business. Yesterday was just a day trade.
If you wanted to hedge that “expensive US equity” exposure, you could have bought plenty of cheap protection in Chinese, European, and Emerging Market equities for the past 6 months. Consensus didn’t do that either.
Instead, that consensus will now blame Trump, #TradeWar, and just about anything other than the lack of an accurate and repeatable measuring and mapping process that was tracking #ChinaSlowing, #EuropeSlowing, and #EMSlowing while the USA kept #accelerating.
Thank goodness for that. God willing, we’ll never be the Old Wall consensus.
My potential problem now, of course, is that I went from literally 1 LONG and 1 SHORT in Real-time Alerts (after selling longs on #overbought signals) on Thursday to 8 LONGS and 2 SHORTS this morning. If my market-timing signal is wrong, I’ll be wrong too.
Been there, done that. And very publicly, many times!
That said, here’s what I’m registering within my @Hedgeye Risk Range #process this morning:
- Chinese Stocks (Shanghai Composite) have already crashed and are signaling immediate-term #oversold
- EM Asia Equity markets that we haven’t liked (Indonesia, Philippines, etc.) are signaling immediate-term #oversold
- Germany’s DAX (which we still don’t like) signaled immediate-term #oversold yesterday
- Spain and Italy saw immediate-term #oversold signals as well yesterday
- Copper (which we still don’t like) signaled immediate-term #oversold yesterday
- Industrials (XLI) which we still don’t like signaled immediate-term #oversold yesterday
I could go on and on about what we still don’t like, but what I really don’t like is shorting something after it goes down on an #oversold signal! If I can’t short what I don’t like, why not buck up and buy something I like?
The biggest risk to buying what I still like (US Dollars and US Growth Exposures), is that the best time to own those exposures is when:
- The US economy is in Quad 1 or 2 (like it has been for 8 straight quarters)…
- And the Global Economy is in Quad 3 and 4 (like it has been for 2018 YTD)
The worst time to stay with that setup is when the US economy finally slows towards Quad 4. US Dollars (long) and International Equities (short) still work, but the bottom falls out in being long High Beta US Growth.
Ex-USD, that’s how the market traded yesterday – classic Quad 4.
And since we have the US economy tracking towards Quad 4 by the end of the summer (and solidly in Quad 4 in Q4), I could very well be playing with fire here overstaying my welcome buying these damn NASDAQ dips.
Then again, I may not be. I’ve been known to be in and out of Real-Time Alerts trades pretty quickly no matter what my longer-term views!
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.85-2.97% (bullish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 7 (bullish)
REITS (VNQ) 78.60—81.20 (bullish)
Industrials (XLI) 71.00-73.88 (bearish)
DAX 123 (bearish)
VIX 12.47-18.21 (bullish)
USD 93.60-95.05 (bullish)
EUR/USD 1.14-1.17 (bearish)
Oil (WTI) 63.99-68.90 (bullish)
Gold 1 (bearish)
Copper 2.91--3.08 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
