3rd Best Buying Opportunity

01/18/19 08:03AM EST

“You Can So Beat The House, Math Expert Insists.”
-Tom Wolfe

Like that title? I don’t mean mine. I mean the one from a young Washington Post writer by the name of Tom Wolfe back in the day. It wasn’t fake news. He was one of the first to explain the math behind Ed Thorp’s #process to beat blackjack dealers.

When I say it’s the 3rd Best Buying Opportunity in big macro exposures like Gold (GLD), Treasuries (TLT), and Yen (FXY) since November, or the 5th Best Selling Opportunity in SPY since September, these are mathematical truths too.

Unless any of these Bullish @Hedgeye TREND prices break-down, hard, from here… you’re simply buying the damn dip at a higher price than where you could have bought them back in December too.

3rd Best Buying Opportunity - 07.31.2018 Bond Long Bond cartoon

Back to the Global Macro Grind…

In a great chapter he called “The Day of The Lamb”, Ed Thorp goes on to opine about life in both casinos and markets (I know what you’re thinking!):

“In the abstract, life is a mixture of chance and choice. Chance can be thought of as the cards you are dealt in life. Choice is how you play them.”A Man For All Markets, page 81

Unlike almost 100% of the people on Twitter, I’ll show you precisely how I’m playing my cards this morning. Win or loss, every move I’ve made in both Real-Time Alerts and from a TRENDING Macro Themes perspective has been #timestamped since 2008.

No matter what you were hoping for in terms of the market’s next set of cards, you have to play the market that’s in front of you this morning. Here’s how I’m going to play my long/short hand:

LONGS

  1. Buy Short (SHY) and Long-term Treasuries (TLT)
  2. Buy Gold (GLD)
  3. Buy Silver (SLV)
  4. Buy Gold Miners (GDX)
  5. Buy Yen (FXY)

SHORTS

  1. Short US Equity Beta (SPY)
  2. Short Financials (XLF)
  3. Short Industrials (XLI)
  4. Short US Retailers (XRT)
  5. Short European Financials (EUFN)

Yes, I have other “high conviction” (everyone needs those, eh) longs and shorts, but from this time and price, those would be my Top 10 Moves as of 623AM on this day of January 18th, 2019.

Some good examples of what our Quad Counting #Process considers Best Idea LONGS and SHORTS that are not yet at the low or high-end of their respective @Hedgeye Risk Ranges are:

LONGS

  1. US Housing (ITB)
  2. US REITS (VNQ)
  3. US Utilities (XLU)

SHORTS

  1. Nasdaq (QQQ)
  2. Russell 2000 (IWM)
  3. Japanese Stocks (EWJ)

Patience, Jedis. Prices have a central tendency to come to those who wait.

Note that none of these positions are direct bets on the effervescent perma bull hope of a China “trade deal”, but the cards we hold today have certainly been affected by that hope.

Hope, of course, is not a risk management or research #process. It’s what gamblers do. If you’re rolling the bones on the US economy magically re-accelerating to The Cycle highs AFTER a record 9 straight quarters of #acceleration, good luck with that.

How about US Earnings Season #accelerating into peak comparisons associated with last year’s “Globally Synchronized Recovery” cycle highs in terms of both the level and rate of change in SP500 earnings growth?

Even if you haven’t done the math, here’s the big picture you’re betting on (slide 64 of the Q1 Macro Themes deck):

  1. SP500 TTM (trailing 12 months) EPS at all-time highs
  2. SP500 TTM EPS fastest #acceleration ever into an all-time high

If you’re taking the other side of my shorts this morning on the #EarningsSlowing call not manifesting, that would be the equivalent of betting your entire bank roll on hitting on a blackjack dealer’s 6. Good luck with that too. You’ll need it.

The much higher-probability bet is simply adjusting your bets as you see the next set of cards…

Every economic data point released in the Global Economy this morning #slowed (in rate of change terms) again. Every one of the Top 10 moves I’d make is signaling a good time to bet. All the while, every emotion is pulling many of you the other way.

I used to play this game with emotion. Got lucky a lot too. Now I’m just counting the quads and signals. Over the intermediate to long-term, I do better that way.

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

UST 10yr Yield 2.62-2.78% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
NASDAQ 6 (bearish)
REITS (VNQ) 74.96-79.79.94 (bullish)
Industrials (XLI) 62.71-69.50 (bearish)
Housing (ITB) 30.99-34.01 (bullish)
Nikkei 191 (bearish)
VIX 17.20-27.44 (bullish)
USD/YEN 107.61-109.62 (bearish)
Gold 1 (bullish)

Best of luck out there today,
KM

Keith R. McCullough
Chief Executive Officer

3rd Best Buying Opportunity - chart of the day

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