“The loftiest pine is often shaken by the winds; high towers fall with a heavier crash; and the lightning strikes the highest mountain.”
- Horace
Today is no day for victory laps. You were either proactively prepared for the worst US stock market crash since 1987, or you were not.
Back to the Global Macro Grind…
There wasn’t much to do out there yesterday. I covered some of my Tech (XLK) and Financials (XLF) shorts. I kept my Junk Bond (JNK) short position on, mainly because the Old Wall is restricting my borrow (so I can’t trade around it like I will Tech and Fins).
Interestingly, there is potentially a lot to do right here and now in both Treasuries and Gold, however.
The way my risk management process works is I quite literally don’t know what, in particular, is going to move in a particular way that gets me to move until I grind through all of the math embedded in my market signals throughout the early morning.
Remember, in fractal math, it’s the particular (not some moving average) that matters most.
Here’s how I summarized my Top 3 Things (Institutional Research email distribution that goes out by 6AM, daily):
- 10yr – with consensus bulls panicking about their fav “stocks”, there’s something new (potentially) developing in the Treasury market this morning. If the UST 10yr Yield can pick-up momentum through the 0.89% zone, my math says it could easily go to 1.19% - so, after taking down my gross exposure to Treasuries on green this week, I’m going to do more of that – the Fed intervened, across maturities, and it didn’t really work! Treasury Bond Vol (the MOVE index) continues to move out…
- GOLD – in fractal math, it’s the particular move (not some moving average) that matters most. The reason why Gold just went on tilt is directly a function of it being a similar set to the aforementioned point about Real Yields; Gold Volatility (GVZ) breaking out > 31 might be as bearish as that signal was for “stocks” – I’m bolted to the chair watching 10s and Gold this morning
- VIX – the good news is its easier to watch a crash happening after you proactively prepared for it. At VIX 75 and implied vol on SPY ballooning to a +32% vs. 30-day realized, there’s nothing to do in equities other than measure & map the construction of bear market bounces. I’m much more focused on Treasuries/Gold here and will review that on The Macro Show @HedgeyeTV 9AM
Not unlike the particular I positioned for in taking down my gross LONG exposure to #Quad4 US Equity Longs (Utes, REITS, and Staples) when my vol of vol signal (VIX > 31) said ALL US Equities would become “uninvestable” for a window of time that others need to get solvent…
This move in The MOVE (Treasury Bond Volatility) and Gold Vol (GVZ) might really matter here.
If it doesn’t, it doesn’t. Unlike most of the people you read who wax philosophically about what macro markets should do, I measure and map what market price/volume/volatility is doing.
So what do I do when something like this happens:
- I keep taking down my gross exposure to the potential risk
- I wait & watch for confirmation of the particular or see if it’s a head-fake
Since some of you follow my process the way I suggest you do, “I keep taking down gross long exposure” to Gold and Treasuries, because my rules-based process already has me taking down gross exposure (booking gains) any time something taps the top-end of my Risk Ranges.
Gold $1690 and UST 10yr Yield 0.50% were the spots to book gains. Post the Fed Fade, I sold more Treasuries too.
What’s a Fed Fade? Well they’re adding up as fast as “stocks” are going down (SP500, Russell 2000, and HIGH BETA Equities crashed -27%, -36%, and -42%, respectively, from their cycle peaks). When the Fed cut rates, stocks faded, then crashed.
When the NY Fed bought Treasuries yesterday, they rallied, then faded, fast.
When you’re in an OODA Loop (a short-term window of time to observe-orient-decide and act) you don’t have to be perfect like some of the intellectuals I compete with on the bid/ask think they have to be. You have to be directionally right, at the right time.
Unlike dogfighting with some Vietnamese MIG, we don’t die if we’re off on the direction by a few hours or days either. Thank goodness for that. We always have the option to land the plane (take down gross exposure) and take more time breathe and re-orient.
Post surviving a heavy crash in “stocks”, the best thing about today is that we have an opportunity to remain a lofty pine while the probability rises that the next lightning strike hits the highest mountain.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.51-1.19% (bearish)
SPX 2 (bearish)
RUT 1051-1280 (bearish)
NASDAQ 6 (bearish)
Utilities (XLU) 52.09-59.96 (bearish)
REITS (VNQ) 69.36-80.43 (bearish)
Consumer Staples (XLP) 49.73-57.77 (bearish)
Tech (XLK) 71.90-83.16 (bearish)
Shanghai Comp 2 (bearish)
Nikkei 17196-19280 (bearish)
DAX 84 (bearish)
VIX 34.93-83.95 (bullish)
USD 95.01-98.47 (bullish)
EUR/USD 1.10-1.13 (neutral)
Oil (WTI) 28.61-35.38 (bearish)
Gold 1 (bullish)
Copper 2.43-2.54 (bearish)
FB 146-176 (bearish)
GOOGL 1064-1241 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
