“You do know – no one will speak with you, right?”
- Greg Zuckerman
That’s a great intro to a good new market history book that many of you have mentioned to me in recent months: The Man Who Solved The Market, How Jim Simons Launched The Quant Revolution.
No, Zuckerman wasn’t able to give you the codes to Simons’ predictive tracking algos and market signals. But, so far (I’m only halfway through the book) there’s plenty to chew on here in terms of building an apolitical and emotionless data-driven #process.
Zuckerman refers to “Markov models, kernel methods of machine learning, and stochastic differential equations” (pg xx), but he doesn’t explain how to implement the math into your models. It makes me happy knowing we still have edge in all of that.
Back to the Global Macro Grind…
Welcome to your post USA holiday Macro Tuesday @Hedgeye! For those of you who are new to our #process, thanks for joining us. As always, thanks to our veteran stochastic students of The ROC (rate of change) data for subscribing to what we do.
Let’s start with the Global Currency market:
- US Dollar Index had a Counter @Hedgeye TREND bounce of +0.3% last week, signaling immediate-term TRADE overbought
- EUR/USD corrected -0.3% last week but remains Bullish TREND @Hedgeye
- Yen fell another -0.6% vs. USD last week after breaking bad to Bearish @Hedgeye TREND in the 2 weeks prior
- GBP/USD corrected -0.4% last week but remains Bullish TREND @Hedgeye
- Canadian Dollar was -0.1% vs. USD last week and also remains Bullish TREND @Hedgeye
- Chinese Yuan ramped +0.9% vs. USD last week, moving back to Bullish TREND @Hedgeye
Looking at last week’s CNY/USD move, did The Machine know that China delivered critical #Quad2 data? In EUR/USD terms, does it know that Germany’s ZEW Index just popped to its highest level since July of 2015 this morning? Of course it does.
That’s why we use The Quads. In our quantamental process, The Quads often front-runs The Machine.
Does The Machine and all of its Quants know what an Up Dollar does to Dollar Driven Commodity Reflations? Yep, it deflates them. That’s what happened, generally, to Commodities last week:
- CRB Commodities Index corrected -0.7% within its Bullish @Hedgeye TREND
- Oil (WTI) corrected another -0.9% within its Bullish @Hedgeye TREND
- Gold (which isn’t a commodity) did nothing last week and remains Bullish @Hedgeye TREND
Gold, which our model considers a currency, did nothing last week because Real Yields did nothing but confirm Bearish @Hedgeye TREND (which perpetuated Gold’s Bullish TREND). Nominal yields were flat last week with:
A) UST 2yr Yield -1 basis point to 1.56% and still Bearish TREND @Hedgeye
B) UST 10yr Yield flat at 1.82% and still Bearish TREND @Hedgeye
Real Yields being Bearish @Hedgeye TREND means the bond market agrees with us that the US economy continues to slow further into #Quad3. US Equity Sector Styles generally agreed with that last week too:
A) Utilities (XLU) led Sector Style gainers with a big +3.7% gain last week
B) Tech (XLK) tacked on another +2.9% gain last week to a new all-time high
Since Utes (loved by no one like Hedgeye, other than The Machine, since The US Cycle peaked in Q3 of 2018) and Tech are the Top 2 Sector LONGS in #Quad3, the bond market to equity market correlation signals continue to rhyme fundamentally.
The Global Equity market signals also rhymes:
- Russian Stocks were up another +1.4% last week and remain Bullish TREND @Hedgeye
- South Korean Stocks were up another +2.3% last week and remain Bullish TREND @Hedgeye
- Danish Stocks were up +3.5% last week and remain Bullish TREND @Hedgeye
The Machine does Denmark? Yep. If you are patient (i.e. you wait for down days like you’ll have in Global Equities today), you buy stock markets in the Eurozone, South Korea, and Russia because the economic data in those countries remains in #Quad2.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.77-1.87% (bearish)
UST 2yr Yield 1.52-1.60% (bearish)
SPX 3 (bullish)
NASDAQ 9051-9437 (bullish)
Utilities (XLU) 64.37-67.12 (bullish)
REITS (VNQ) 92.45-95.40 (bullish)
Energy (XLE) 58.42-60.75 (bullish)
Tech (XLK) 92.40-97.60 (bullish)
DAX 135 (bullish)
VIX 11.51-13.99 (bearish)
USD 96.50-97.55 (bearish)
EUR/USD 1.10-1.12 (bullish)
USD/YEN 108.71-110.66 (bullish)
GBP/USD 1.29-1.31 (bullish)
Oil (WTI) 56.44-62.91 (bullish)
Nat Gas 1.87-2.20 (bearish)
Gold 1 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
