Big FOMO Week, Indeed

“The Greeks knew how to cover naked economic truth with the fig leaf of a phrase.”

-Will Durant

And the Chinese know how to cover-up protests with the help of some well-timed Trump Tweets! Obviously within the context of long-term economic and market history, whatever “happened” last week is ultra-short-term. HK protestors were back at it this weekend.

Back to the Global Macro Grind…

It’s Macro Monday @Hedgeye! Welcome back. For those of you who are new to our truth-seeking measuring and mapping #process, on the first day of every week we review macro markets from the week prior within the context of both The Cycle and @Hedgeye TRENDs.

As usual, let’s start with the Global Currency Market:

1. US Dollar Index finally corrected -0.5% last week but is +3.5% year-over-year and remains Bullish TREND in #Quad4
2. EUR/USD bounced +0.4% last week to -3.8% YTD and remains Bearish TREND @Hedgeye ahead of the ECB meeting
3. YEN corrected -0.6% vs. USD last week to +2.5% YTD and remains Bullish TREND @Hedgeye 
4. GBP/USD bounced +1.0% last week to -3.7% YTD and remains Bearish TREND @Hedgeye with the UK in #Quad4
5. Argentine Peso reflated +6.6% vs. USD last week to -32.7% YTD (not a typo) and remains Bearish TREND @Hedgeye   
6. CNY/USD bounced +0.6% last week to -3.3% YTD and the Chinese Yuan remains Bearish TREND @Hedgeye  

“So… what would you need to see to sell all your #Quad4 exposures and get long #Quad2?” If we don’t get that question 100x/day, we get it 1,000x. Breaking the back of #StrongDollar (USD is only strong during #Quad4) is one of the big market signals I’m waiting for.

Another one would be the inverse of Dollar Down and that’s Commodity prices undergoing a Bullish Phase Transition (i.e. from Bearish to Bullish @Hedgeye TREND). Did that start last week or was it yet another Counter @Hedgeye TREND bounce?

1. Commodities (CRB Index) bounced +1.3% last week to -9.0% year-over-year and remain Bearish TREND @Hedgeye 
2. Oil (WTI) bounced +2.6% last week to -12.8% year-over-year and remains Bearish TREND @Hedgeye 
3. Copper bounced +3.2% last week to -2.9% year-over-year and remains Bearish TREND @Hedgeye   
4. Natural Gas ramped +9.2% last week to -4.5% year-over-year moving from Bearish to Neutral TREND @Hedgeye  
5. Corn did not bounce – it deflated another -3.9% last week to -10.3% year-over-year and remains Bearish TREND
6. Cattle prices continued to #crash, down another -4.1% last week and -16.2% year-over-year = Bearish TREND

What if I’m late on making the #Quad2 turn? What if you’re early? While I sincerely appreciate clients wanting to front-run our own process, that doesn’t mean doing that comes without risk. I built the @Hedgeye TREND signal to help me time it right, don’t forget.

A 1-2 week Counter @Hedgeye TREND move in Treasuries and Gold isn’t going to phase my Phase Transitions though:

1. UST 2yr Yield was +4 basis points last week to -109bps year-over-year and remains Bearish TREND @Hedgeye  
2. UST 10yr Yield was +6 basis points last week to -131bps year-over-year and remains Bearish TREND @Hedgeye  
3. Gold corrected -0.9% last week to +22.3% year-over-year and remains Bullish TREND @Hedgeye  

Yep. When Real Yields are Bearish TREND, that’s Bullish TREND for both Gold and Treasury Bond prices. Since that’s the biggest call we made, at The Cycle turn, during #Quad4 in Q4 of 2018, I’m watching those ABC’s much more closely than Dow Bro FOMO!

Oh, but if you take an Old Wall chart of crashing ISM’s and PMI’s and draw a green arrow to the upside with zero data points to support it, it’s all good brothers and sisters. If you want to be early getting out of #Quad4 exposures on that, go for it.

In US Equity Sector and Style Factor terms, albeit on #decelerating volume (with volatility going back to the low-end of my @Hedgeye Risk Ranges), there was plenty of evidence of #FOMO in the futures last week:

1. HIGH BETA stocks led the rally +3.4% on the week but still -2.3% in the last 3 months
2. SMALL CAP stocks were right there too +3.4% on the week but still -4.3% in the last 3 months
3. LOW BETA stocks lagged the rally at +1.4% on the week but are still +4.8% in the last 3 months

LOW-BETA, MINIMUM VOL (and preferably LARGE CAP without LOW DEBT/EV) is where I’d be allocating capital this week. That’s not new. I’ve been doing that since the FOMO was back in US Equity Futures in July.

And since @Hedgeye TREND signals are 3 months or more in duration, I’ll also stay long of #patience instead of buying at an almost epic level complacency vs. only 1 month ago today.

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

UST 10yr Yield 1.43-1.60% (bearish)
UST 2yr Yield 1.42-1.58% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
Utilities (XLU) 61.60-64.04 (bullish)
REITS (VNQ) 90.50-94.47 (bullish)
Financials (XLF) 25.85-27.66 (bearish)
VIX 14.73-22.54 (bullish)
USD 97.65-99.14 (bullish)
EUR/USD 1.09-1.11 (bearish)
USD/YEN 105.49-107.21 (bearish)
GBP/USD 1.20-1.24 (bearish)
Oil (WTI) 53.24-57.69 (bearish)
Nat Gas 2.13-2.54 (neutral)
Gold 1 (bullish)
Copper 2.50-2.65 (bearish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer