“They broke the deal.”
For the record, I don’t doubt they did. Can you imagine you’re doing a big and huge “deal” (with legal ramifications) with the Chinese government and you get the initial redline (i.e. details) of your “very very good” deal back?
But who broke market expectations? Who perpetuated those expectations? Is this the literal art of the deal?
And on what duration did things break? Is this just an immediate-term TRADE break? Or is this the beginning of a new intermediate-term (and bearish) @Hedgeye TREND across plenty of hyped and hoped up growth expectations?
Back to the Global Macro Grind…
If you don’t have a lot of unanswered questions in your respective market notebooks this morning, you certainly don’t measure and map Global Macro markets like I do!
I have the most questions when immediate-term TRADEs diverge from intermediate-term TRENDs. This is always the most critical point in risk management mainly because my volatility signal breaks out.
And, as I wrote about in yesterday’s Early Look, the central question my #process is asking me is whether or not that Volatility Breakout is just a cluster (episodic and non-TRENDing) or the beginning of a new @Hedgeye TREND?
Where you at on this, TRADE or TREND?
Realizing that a certified monkey with a chart can tell you he’s bullish when my quantitative market signals are Bullish across all 3 of my core risk management durations (TRADE, TREND, and TAIL)…
What does the simple and smooth Moving Monkey do when a few of his simple moving averages break?
While the behavior of people using Simple Tricks in their “charts” is proactively predictable AFTER things move… AND, in the very-short-term (1-3 day duration) things will get immediate-term TRADE #oversold…
The real game within The Game is what you do on the bounce. Here’s how I A/B Test that:
A) If something is signaling Bearish on both my TRADE and TREND durations, those are the easiest markets, exposures, and securities to SELL on market bounces
B) If something signals a Bearish TRADE break-down but remains Bullish @Hedgeye TREND (and my research #process confirms that TREND), I’ll usually buy the damn dip in that against my shorts
What do you do? I can assure you that what I used to do (and what former bosses did) didn’t work. Panic, emotion, valuation… it’s all there in those clusters of volatility, so I’ve built a process to absorb that behavioral reality.
Is it perfect? Nope. Market’s aren’t either. Short-term and stochastic (random) patterns of conflict (TRADE vs. TREND) usually iron themselves out into what the intermediate-term @Hedgeye TREND will be, however.
Enough about the #process, here are the Top 10 Bearish TRADE and TREND signals in Global Equities this morning:
- China’s Shanghai Composite
- Hong Kong’s Hang Seng
- South Korea’s KOSPI
- Japan’s Nikkei
- Brazil’s Bovespa
- Spain’s IBEX
- France’s CAC
- Greece’s ATG
- Turkey’s ISE
- Russell 2000
If you have friends with a US charting confirmation bias that isn’t Global, tell them it’s all good in the USA, ex-the-Russell 2000, which is still down -10% from where the “chart” looked awesome at the US Profit Cycle Peak in Q3 of 2018.
Here are the Patterns Of Conflict (thank you John Boyd, RIP) with Bearish TRADE breaks (but still Bullish TREND):
- Taiwan’s Weighted Index
- India’s BSE Sensex
- Germany’s DAX
- Russia’s RTSI
- Mexico’s Index
So what will it ultimately be, TRADE or TREND? What if that Top 10 Bearish @Hedgeye TREND list is a leading indicator for some or all of the Top 7 Bullish @Hedgeye TRENDs to break?
For me, this is only Part B of my A/B Test. Don’t forget Part A is our fundamental research #process (i.e. our 4 Quadrant GIP Model that measures and maps GROWTH and INFLATION data in real-time).
But within Part B, there are plenty of other signals either confirming or disconfirming whatever narrative the Old Wall is trying to sell you with Macro Tourist soundbites today:
- Front-month Equity VIX = Bullish TRADE and TREND
- 2-year UST Yield = Bullish TRADE and TREND
- 10-year UST Yield = Bullish TRADE and TREND
- 10-year German Bund Yield = Bullish TRADE and TREND
- Copper = Bearish TRADE and TREND
- Dollar vs. Yen = Bearish TRADE and TREND
Since I measure and map everything (all major asset classes), globally, across 50 countries, I could go on and on here but the arthritis from old hockey fights in my knuckles is killing me on the keyboard this morning.
The point about the aforementioned 6 signals is that they are #NotGood for what the Old Wall and its conflict-of-interest media was selling you only 6 days ago via the most complacent position in US Equity Volatility in 3 years.
To simplify the complex – lots of stuff broke “the deal” of no market and/or economic risk. We’ll see who (Trump, The Fed, Xi, etc.) tries to un-break what first or if this initial market response is just the beginning of more things breaking.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 2.43-2.57% (bearish)
UST 2yr Yield 2.21-2.38% (bearish)
SPX 2 (bullish)
RUT 1 (bearish)
NASDAQ 7 (bullish)
Utilities (XLU) 56.61-58.91 (bullish)
Financials (XLF) 26.54-28.27 (bearish)
Shanghai Comp 2 (bearish)
Nikkei 211 (bearish)
DAX 12001-12470 (bullish)
VIX 14.07-20.98 (bearish)
USD/YEN 109.56-111.28 (bearish)
Oil (WTI) 59.97-64.69 (bullish)
Nat Gas 2.45-2.66 (bearish)
Gold 1 (bullish)
Copper 2.71-2.86 (bearish)
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer