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“Volatility clusters here and there.”
-Benoit Mandelbrot 

When it comes to measuring and mapping the relationship between a market’s price and its volatility, most of what I believe to be true came from a crazy math teacher @Yale. I call him The Brot. 

Crazy, you know, like way-out-there relative to his academic peers kind of crazy. Sat-by-himself in the dining hall having full blown conversations out loud (with himself) kind of crazy. I love crazy. I love markets too. 

“My current best model of how a market works is fractional Brownian motion of multi-fractal time. It has been called the Multifractal Model of Asset Returns.” –Benoit Mandelbrot, The (Mis)Behavior of Markets, pg 217 

Back to the Global Macro Grind… 

#Oversold, Again - 08.27.2018 consensus cartoon

Got a volatility cluster? Even the SP500’s VIX is up +28% since it made a higher-all-time-low on August the 8th, 2018. And that’s with the price of the SP500 registering multiple all-time highs in between now and then. 

Volatility Clusters in China, EM, FX, etc. were so big that even the Old Wall and its media have noticed these “risks” in the last 24 hours. That johnny-come-lately consensus is probably why I’m registering some big #oversold signals this morning. 

Non-fake newsflash: bear markets often signal immediate-term #oversold. 

Bear markets? Cmon KM. I have a buddy @CNBC named Joe who navel gazes at the “Dow” in points all morning long and prefaces almost everything he says with “I don’t know, but…”

Believe him. 

And believe that the Spanish stock market is down another -0.5% this morning taking its draw-down to -16.8% since May of 2017. In multi-duration signaling terms, the IBEX is also signaling immediate-term TRADE #oversold within a Bearish @Hedgeye TREND

To each their own, but if you’re going to work with or for me, you will learn to speak quantitatively in rate of change terms. The market and/or the data doesn’t “feel” a certain way. The math in our models doesn’t feel anything.

And that’s not a shot at great traders who legitimately have a feel for markets. It’s actually a much bigger admission of my own lack of feel. I’ve been trading markets for almost 20 years now, and my machines are way more accurate than I’ll ever be. 

So what’s signaling immediate-term TRADE #oversold within what have been consistent Bearish @Hedgeye TRENDs this year? 

  1. Chinese Stocks – as in both the Shanghai Composite Index (down -24.4% since JAN) and the Hang Seng down -1% overnight
  2. Indonesian Stocks post their -3.7% decline yesterday
  3. Turkish, Russian, and French stocks have all signaled immediate-term #oversold in the last 24 hours
  4. South African stocks post their -7.1% 1-day decline this week
  5. Germany’s DAX which signaled immediate-term TRADE #oversold at 12,051 yesterday
  6. Copper which signaled immediate-term TRADE #oversold at $2.58 yesterday
  7. Facebook (FB) which signaled immediate-term TRADE #oversold at $166 yesterday 

Whoa. Hold on their Canadian cowboy – yesterday? You’re telling me something you should have told me yesterday? Actually, no, I’m not. I’m just reiterating what my @Hedgeye Risk Ranges product tells you, daily. 

I guess I should have explained this to all of you 10 years ago when I started this fishbowl gig, but I don’t publish my daily Risk Ranges for kicks and giggles. I publish it because I use it. I publish almost everything that’s embedded in my market-timing process. 

For those of you who are new to using our process to help augment yours, here’s how you read and use the following data and information: 

UST 10yr Yield 2.79-2.92% (bearish)
SPX 2 (bullish)
RUT 1 (bullish)
NASDAQ 7 (bullish)
Utilities (XLU) 53.06-54.71 (bullish)
REITS (VNQ) 82.53-84.65 (bullish)
Industrials (XLI) 75.32-78.10 (bearish)
Nikkei 225 (bullish)
DAX 12020-12419 (bearish)
VIX 11.52-14.58 (bearish)
USD 94.30-95.96 (bullish)
EUR/USD 1.15-1.17 (bearish)
YEN 110.60-111.85 (bearish)
GBP/USD 1.27-1.30 (bearish)
Oil (WTI) 67.45-70.60 (bullish)
Nat Gas 2.75-2.98 (bearish)
Gold 1190-1223 (bearish)
Copper 2.58-2.78 (bearish)
Corn 3.52-3.70 (bearish)
AAPL 213.55-231.97 (bullish)
AMZN 1911-2066 (bullish)
FB 165-177 (bearish)
GOOGL 1187-1272 (bullish)
NFLX 334-382 (neutral)
TSLA 275-316 (bearish)
Bitcoin 6 (neutral) 

  1. If it says “bearish” in brackets, that means it’s a Bearish @Hedgeye TREND
  2. If it says “bullish” in brackets, that means it’s a Bullish @Hedgeye TREND
  3. You buy/cover at the low-end of the range and sell/short at the top-end of the range 

If you want to go all wild and Brot-like-crazy, you can short Bullish @Hedgeye TRENDs at the top-end of the @Hedgeye Risk Range like I did in Target (TGT) in Real-Time Alerts yesterday. But you’ll make and save a lot more money staying with our TRENDING views. 

i.e. 

  1. Buying the damn dips in Bullish @Hedgeye TRENDs
  2. Selling the rips in Bearish @Hedgeye TRENDs
  3. Staying away from Neutral @Hedgeye TRENDs 

In fact, not to toot my own horn (which I would obviously NEVER do, ha!), but I’d bet you all the money in your personal account that for the last 2 years, you’d have beat at least 80% of Global Macro Hedge Fund managers just staying with our TRENDING positions. 

Oh I’ll be getting run over in something very big, very soon, for trumpeting the score. I get that. But it’s hard to get train wrecked on the short side when you’re covering shorts on #oversold signals don’t forget. 

Best of luck out there today,

KM 

Keith R. McCullough
Chief Executive Officer

#Oversold, Again - 09.06.18 EL Chart