Globally #Overbought

“The less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own.”
-Warren Buffett 

Despite Durable #Slowing in the US Durable Goods report yesterday, US Equity Futures are off the races again this morning. Why? Oh that’s simple. Big time “trade deal” pending, bro. Yep, you can read all about it in the FT. 

If you’re more of an Old Wall Journal fan, you can get the dirt on what Trump really thinks about PE (Private Equity) Powell. “Mnuchin gave me this guy.” And apparently going dovish 3x in less than 3 months isn’t enough! 

Can you remember a time in your investing career where the only market catalysts (to the upside) that mattered were A) more central market planning #cowbell and B) more “trade deals”? I can’t. If USA wasn’t #slowing, you wouldn’t have to either. 

Back to the Global Macro Grind… 

“So”… as they like to say in Silicon Valley (before they provide you with the next big idea and/or explanation on the way the world could or should work), what do you do with your money now?

Let’s start with what you shouldn’t do: 

A) Chase markets higher at the top-end of the @Hedgeye Risk Range
B) Abandon your data-dependent measuring of The Cycle for a few articles being pumped at you like LYFT was 

What’s at or close to the top-end of the @Hedgeye Risk Range this morning? 

1. Shanghai Comp +1.2% overnight signals immediate-term TRADE #overbought within its Bullish @Hedgeye TREND
2. Germany’s DAX +1.3% this a.m. signaling immediate-term TRADE #overbought challenging TREND resistance
3. Oil (WTI) up at +$62.63/barrel signaling immediate-term TRADE #overbought within its Bullish @Hedgeye TREND
4. Financials (XLF) should signal immediate-term TRADE #overbought within their Bearish @Hedgeye TREND
5. Russell 2000 (IWM) should signal immediate-term TRADE #overbought within its Bearish @Hedgeye TREND 

By “should signal”, I’m assuming that the XLF and IWM open where they’re indicated at 6AM EST. If something fundamental happens (like more US economic data #slowing or, God forbid, a company reporting reality) we may not get those levels. 

Before I get to the economic data, need some short cuts for your boss on what’s driving 1 through 5? 

1. CHINA – PMI’s bouncing off their cycle lows + articles, and charts – all good, for now
2. DAX – if The Cycle that few called #slowing has officially “bottomed”, why not?
3. OIL – Triple Dovish Fed + Saudis = Quad 3 Core Long, eh
4. FINANCIALS – Counter @Hedgeye TREND bounce  in bond yields, globally, this morning
5. RUSSELL – it’s still down -11% from where we made The Cycle #peak call, so why not? 

Yep, you get it. If you didn’t have Buffett’s aforementioned prudence and chased China, Germany, or the Russell 6 months ago, the prudent portfolios beat yours. If you did and you bought things like Treasury Bonds and Bond Proxies, all good. 

While I’m not a big fan of “Year-to-date” until we’re at least 4-6 months into the year (i.e. a trending duration), even the YTD crowd has to be pleased with how core Quad 3 LONGS have beaten up on the #1 Quad 3 US Equity Sector SHORT (XLF): 

1. REITS (XLRE) were up another +0.9% yesterday to +17.5% YTD and remain Bullish TREND @Hedgeye
2. Energy (XLE) was up another +0.7% yesterday to +16.0% YTD and remains Bullish TREND @Hedgeye
3. Financials (XLF) were down -0.1% yesterday to +10.5% YTD and remain Bearish TREND @Hedgeye 

Obviously if the US economy wasn’t #slowing, the PE Powell wouldn’t be hurrying you up into expecting a rate CUT… Oil wouldn’t be reflating on that… and REITS would be the train wreck they were during his Quad 2 rate HIKES.

“So”… on that US #GrowthSlowing data that has our Q119 headline GDP nowcast at +1.13%: 

1. Durable Goods #slowed to +1.8% y/y in FEB vs. +8.2% in JAN = 17 month low
2. Ex-Aircraft & Defense, Durable Goods #slowed to +4.6% in FEB vs. +6.1% in JAN = 20 month low
3. CAPEX #slowed (again) to +2.6% y/y (year-over-year) in FEB vs. +4.3% in JAN 

Reminder vs. The Cycle peak back in Q3 of 2018: 

A) CAPEX was +8.8% year-over-year in JUL, so it’s down yuuuuge in ROC (rate of change) terms from there
B) RETAIL SALES were +6.6% year-over-year in JUL and #slowed to +2.2% in FEB (see yesterday’s Early Look) 

Oh, but Keith… that’s all “because of the government shut-down… and China trade wars…” 

Is that really the prudent multi-duration and multi-factor view of a US economic cycle that saw year-over-year GDP #accelerate for a record 9 CONSECUTIVE QUARTERS into the Q318 cycle peak? Weren’t we up, just a tad, on that thing called Tax Reform? 

Furthermore, is it prudent to assume that the GROWTH RATE of SP500 Earnings getting cut in HALF in Q418 was because the government was not shut-down? Or was that all just about China too? 

No matter what your answers to these questions, I’m always a seller on immediate-term #overbought signals inasmuch as I was a buyer on last week’s #oversold signals. At a bare minimum I consider that a prudent way to conduct my affairs. 

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

UST 10yr Yield 2.32-2.54% (bearish)
UST 2yr Yield 2.16-2.40% (bearish)
SPX 2 (bullish)
RUT 1 (bearish)
REITS (VNQ) 84.90-87.80 (bullish)
Energy (XLE) 64.13-67.64 (bullish)
Financials (XLF) 24.85-26.65 (bearish)
Shanghai Comp 3007-3226 (bullish)
DAX 112 (neutral)
VIX 12.41-16.94 (bearish)
Oil (WTI) 58.47-62.93 (bullish) 

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer