“Burn the boats.”
-Alexander The Great
Allegedly, that’s what the Alexander said upon reaching the shores of Persia, “thereby cutting off his army’s only means of retreat.” That’s also the lead quote into a chapter in Mastering Fear titled “Decision” – as in sometimes you have to make one and commit to it.
“My face was grinding into the sand, my body is beyond exhausted. Four terrifying men are clustered around me, screaming at me and doing their best to kill me. Not physically kill me. I’ll grant you that.” –Brandon Webb (pg 47)
While that may sound a little like Phase 1 of Quad 4 in Q4, what Webb was describing was what could have been his quitting-point in Basic Underwater Demolition/Navy SEAL training, or BUDS.
Back to the Global Macro Grind…
“Nice call man, I got long some Utilities and Staples and got rid of a bunch of Consumer Discretionary… but I didn’t fully commit to Quad 4 and I’m still long some really good Tech stories… so what do you think I should do now?”
A: ugh
I bet some of those High Beta, Momentum Tech stories were really cool. So were the returns associated with being long them for the record 9 straight quarters that the USA was in Quads 1 and 2. That’s where the really good stories with big momentum charts work.
In more recent Quad 4 news, yesterday was the 7th down day in the last 8 for the SP500. Leaders on the downside were:
- IBUY (the “online Retail” ETF) at down -1.7%
- US Tech (XLK) at down -1.6%
- MTUM (Momentum) at down -1.3%
Vs. Utilities (XLU) which were up +0.5% in a down tape and are +1.0% for OCT to-date vs. Tech (XLK) at down -7.5%.
So you were either committed to the Quad 4 risk management #process or you were not. After being long plenty of Consumer Discretionary and Tech for the last 2.5 years, my wife and I don’t have one Tech holding in any of our retirement accounts.
That doesn’t mean we can’t buy back those exposures when the process suggests we should. It doesn’t mean we don’t use Amazon (AMZN) anymore either. It’s what you get rid of when you commit that really counts.
But what if you didn’t sell these Factor Exposures and/or didn’t sell enough of them? Well, you may not want to hear this, but join the consensus club. When everyone has to “de-risk” the same thing at the same time, the bounces to lower-highs are fleeting.
“But this is clearly overdone.”
Not clearly. Not from an immediate-term @Hedgeye Risk Range perspective it isn’t. Instead of geeking out on the Factor Exposures, just look at my risk ranges and TREND signals (in brackets) for widely held FAANG components:
- AAPL 210.54-222.91 (bullish)
- AMZN 1 (bearish)
- FB 149-162 (bearish)
- GOOGL 1055-1167 (bearish)
- NFLX 302-355 (bearish)
*these are all published daily in my @Hedgeye Risk Ranges product
So you’re saying there’s a chance? With Apple (AAPL) actually teetering on a @Hedgeye TREND breakdown (TREND support = $211/share), that’s the only stock that I’d even consider buying the damn dip in here.
What if it’s not a dip?
If you look at the most cyclical component of US Tech: Semiconductor Stocks (SMH), the initial March-April 2018 break-down to Bearish @Hedgeye TREND clearly wasn’t a dip.
In sharp contrast to the cooler stories in Tech which only started to break-down during Quad 4 in Q4, Semis (SMH) peaked as the “globally synchronized recovery” was peaking in Q1 of 2018.
On March 12th of 2018, Semis (SMH) stopped going up. Since that date, Semis are down -14.8%. That means that if you chased what was a “really good looking chart” back then, you need to be up almost +18%, from here, to get back to break-even.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:
UST 10yr Yield 2.98-3.27% (bullish)
SPX 2 (bearish)
RUT 1 (bearish)
NASDAQ 7198-7659 (bearish)
Utilities (XLU) 52.11-54.65 (bullish)
Shanghai Comp 2 (bearish)
VIX 14.13-26.88 (bullish)
USD 94.40-95.75 (bullish)
YEN 111.25-114.75 (bearish)
Oil (WTI) 69.96-76.95 (bullish)
Gold 1179-1239 (neutral)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
