“When an object is scaled up in size, its volume increases at a much faster rate than its areas.”
-Geoffrey West 

If you think I sound crazier than the guys trying to call the bottom for the last 3-4 weeks, that’s totally cool with me. I’d prefer being called crazy than consensus. 

Consensus Macro people don’t do Fractal Geometry. They generally don’t do Power Laws. And they definitely don’t do Quad 4. 

The aforementioned quote comes from a polymath by the name of Geoffrey West in an awesome book called Scale. If you want to re-educate yourself from the bottom-up, I highly recommend this book. After reading it, you’ll think I’m less crazy, in rate of change terms. 

Back to the Global Macro Grind… 

You know what’s certifiably crazy? Listening to some CNBC pundit who didn’t tell you to get out of Momentum, High Beta, and Growth back in September tell you where the precise bottom “is in” in October. 

Crazy? Sell The Bounce (Again) - cnbc hedgeye cartoon

I get that some people are in the business of being long and looking for someone to help them confirm that compensation bias, but let’s get serious here this morning. Did you or did you not Sell Enough of the aforementioned exposures: 

A) In late September?
B) In early October?
C) Or on any of the 4 US equity beta bounces in the last 3 weeks?

If you did not, here’s another chance to improve your positioning. After telling you it wasn’t time to panic at last week’s lows (see Early Look on OCT 25th titled “#Oversold Panic” for my timestamp on that), I’d sell the bounce from here to the next +1-4% higher in SPY. 

Will we get another +1-4% of upside in the SP500 to sell into? 

A) The top-end of the @Hedgeye Risk Range = 2774 this morning
B) Bearish @Hedgeye TREND resistance = 2818

So my math implies +2.3-3.9% of upside vs. at least -4% of immediate-term (as in it could happen in a day) of downside. That doesn’t sound so bad, unless you just got pounded in OCT and can’t afford to be down another -1%, never mind -4%, to start November. 

When I write “you”, I don’t actually mean you. I mean them. As in the other side of our view. Most of you who pay for this had an awesome October and are right fired up to crush it again in November. So let’s broaden our horizons and do that beyond SPY. 

My Top 3 Things (Institutional Subscription that goes out usually by 6AM EST) this morning actually don’t have anything to do with SPY: 

  1. USD – the biggest long position in my p.a. (#StrongDollar has been our call since April) finally registering an immediate-term #overbought signal within its Bullish @Hedgeye TREND; sold some yesterday and would love to buy more at the low-end of the @Hedgeye Risk Range again (95.30 on the US Dollar Index)
  2. GOLD – with many clamoring for more US stock market cowbell yesterday, I just went down my own path and bought Gold (GLD) on an immediate-term #oversold signal in Real-Time Alerts (and the p.a.!); any USD correction should help, but the big one for Gold would be a lower-high on the UST 10yr Yield on a hawkish US Wage Inflation print tomorrow
  3. ASIA – did you chase the bounce at month-end? I certainly hope not. Asian Equity markets (where #Quad4 started, globally, in JAN) resumed Bearish @Hedgeye TREND overnight with the Nikkei -1.1% and the KOSPI resuming its crash -0.3% to -22.1% since JAN; measure and map all of Global Macro – don’t stare at the Dow, in points 

So there are some big things to think about as you weigh whether you’re going to have another Selling Opportunity in US Growth stocks today. Fundamentally speaking, why did USD signal #overbought and Gold #oversold yesterday? 

One component of the answer has to be Europe. You don’t have to be a math major to get that when the European economic data sucks and the Euro signals immediate-term #oversold, that you should book some gains in one of my favorite longs of Red October 2018. 

Admittedly, the word ‘sucks’ isn’t a ROC (rate of change) word; sucking or slowing at an accelerating rate looks more like this: 

  1. German Retail Sales down -2.6% year-over-year in SEP
  2. French Consumer Spending down -1.5% year-over-year in SEP
  3. Spanish Retail Sales down -3.1% year-over-year in SEP 

Remember our #EuropeSlowing call from this time last year? I do. I made that call when Tommy Lee was slapping a $100,000 price target on Bitcoin. Not to pick on the guy because he’s a really nice guy, but if you’re in his camp this morning (I just googled him): 

A) “Fundstrat’s Tom Lee is ‘pleasantly surprised’ by the stability of Bitcoin” (its down -56% YTD)… and
B) “Wall Street strategist Tom Lee says rapid market sell-off is over” –CNBC 

I seriously have no idea what Lee or any other econ or strategist was telling you when we made the Quad 4 call in China, Europe, and EM back in January… or when we made the Quad 4 call in the USA in September. 

But I can assure you that if you google it, you’re not going to see anything but information about Oldsmobile engines. Call me crazy. But, if I see you in person in a few weeks, please don’t tell me you didn’t sell any of these bounces. 

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

UST 10yr Yield 3.03-3.23% (bullish)
SPX 2 (bearish)
RUT 1 (bearish)
NASDAQ 6 (bearish)
VIX 18.40-26.91 (bullish)
USD 95.30-97.26 (bullish)
EUR/USD 1.12-1.15 (bearish)
Oil (WTI) 64.12-69.39 (bearish)
Gold 1 (neutral)
Bitcoin 6110-6495 (bearish) 

Best of luck out there today,


Keith R. McCullough
Chief Executive Officer

Crazy? Sell The Bounce (Again) - 11.01.18 EL Chart