Counter TREND Bounces

“If you watch the news and don’t like it, then this is your counter program to the news.”
-Jon Stewart 

Talk about being early on #FakeNews. Jon Stewart’s The Daily Show started in 1999 and ran until 2015. One of my personal favs was when he took poor ole Jim Cramer to task and held him to account. You’re not allowed to do that to Jim on CNBC! 

When you watch financial market “news” on TV, what do you see, hear, or feel? Do you enjoy it? Does it frustrate you? Do you watch it at all, or just on mute?

If you watch @HedgeyeTV and like it, I just wanted to thank you this morning. It’s been a lot of fun building this counter consensus media platform. We can’t do this without your ongoing support.

Back to the Global Macro Grind…

What do you do when you see a Counter TREND Bounce?

It’s Macro Monday here @Hedgeye. When trying to answer this critical risk management question, the process of contextualizing weekly moves across multiple factors and durations matters more than almost anything else.

Let’s start with the global currency market:

1. US Dollar Index was up another +0.2% last week to +4.8% YTD and remains a big Bullish @Hedgeye TREND
2. EUR/USD was down -0.1% last week to -5.1% YTD and remains Bearish @Hedgeye TREND
3. Japanese Yen dropped -1.2% vs. USD last week to -0.5% YTD and remains Bearish @Hedgeye TREND
4. British Pound bounced +1.1% vs. USD last week to -4.0% YTD and remains Bearish @Hedgeye TREND
5. Brazilian Real corrected -1.5% vs. USD last week to -10.4% YTD and remains Bearish @Hedgeye TREND
6. Mexican Peso fell another -3.3% vs. USD last week to -3.6% YTD and remains Bearish @Hedgeye TREND 

Note that @Hedgeye TRENDs remain bearish in places like Brazil and Mexico despite their “political catalysts” and, in the case of Mexico, the grand resolution to Trump’s alleged “Trade War.”

If you watch mainstream TV, everything is always all about Trump and the “Trade War”… but how helpful has that Macro Tourism been to improving your returns or process in 2018? 

Measuring and mapping the economic cycle in rate of change terms? Now that’s the stuff of championship alpha this year. If last week (the 1^st up week in the last 6 for the US stock market) was counter to how you’re positioned, you’re in my camp:

1. SP500 was +2.4% last week to +1.8% YTD and remains Bearish @Hedgeye TREND
2. NASDAQ was +2.7% last week to +6.6% YTD and remains Bearish @Hedgeye TREND
3. Russell2000 was +4.3% last week to +0.8% YTD and remains Bearish @Hedgeye TREND 

This, of course, came on a nice month-end markup and some “really nice” tweeting from Trump about discussions with China’s Xi, who subsequently chirped Donald this weekend (which wasn’t nice). 

Looking at the Sector and Factor Exposures within the US Equity market, the biggest losers of the past few months had the biggest bounces: 

1. Basic Materials (XLB) bounced +6.1% last week to -10.9% YTD and remain Bearish @Hedgeye TREND
2. Financials (XLF) bounced +4.4% last week to -4.7% YTD and remain Bearish @Hedgeye TREND
3. HIGH BETA (as a factor exposure) bounced +7.1% last week to -5.9% YTD and remains Bearish @Hedgeye TREND

Imagine AFTER that kind of a bounce, you’re DOWN -4.7-10.9% for 2018 YTD? That’ll leave a performance and process mark. But it’s actually not as bad as the YTD score is for portfolio’s that are long things like China, Europe, and EM: 

1. Chinese Stocks bounced +3.0% last week to -19.1% YTD and remain Bearish @Hedgeye TREND
2. Emerging Market Stocks (MSCI) bounced +3.4% last week to -16.1% YTD and remain Bearish @Hedgeye TREND
3. Italian Stocks (MIB Index) bounced +3.8% last week to -11.3% YTD and remain Bearish @Hedgeye TREND 

Down -11.3-19.1% YTD, post the bounce? #ouchy 

With both Asian and Italian Equities resuming their crashes and declines this morning, did the @Hedgeye TREND change? Nope. Neither did our Quad 4 call in the USA. 

On that front, while US Treasury Bond Yields bounced on the US Wage Inflation news on Friday, the most obvious components of headline inflation continued to break-down: 

A) The CRB Commodities Index deflated another -1.6% last week to -0.8% YTD and remains Bearish @Hedgeye TREND
B) Oil (WTI) deflated another -7.0% last week to +8.2% YTD and remains Bearish @Hedgeye TREND 

This ensures the INFLATION #Slowing component of our Quad 4 in Q4 call. The GROWTH part is, as always, data dependent too. Last week’s ISM #Slowing report for OCT should be the first of many that Trump may need a counter TREND tweet to offset! 

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

UST 10yr Yield 3.04-3.22% (bullish)
SPX 2 (bearish)
RUT 1 (bearish)
NASDAQ 6 (bearish)
Utilities (XLU) 52.65-55.27 (bullish)
Shanghai Comp 2 (bearish)
VIX 18.05-26.94 (bullish)
USD 95.50-97.25 (bullish)
EUR/USD 1.12-1.15 (bearish)
YEN 111.74-113.50 (bearish)
GBP/USD 1.26-1.30 (bearish)
Oil (WTI) 62.35-68.56 (bearish)
Nat Gas 3.15-3.48 (bullish)
Gold 1 (bullish)
AAPL 206.02-218.40 (bearish) 

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer