“You don’t take a photograph. You make it.”
- Ansel Adams
That’s a great quote from one of the greatest landscape photographers of all-time. Picasso said something along the same lines – it’s not what you are looking at, it’s what you see.
‘But, but… Keith, you’re supposed to be bearish, at every market price – you said you’re bearish.’
Uh, no. Risk managing (i.e. trading) a bear market requires you to see The Game like others don’t. There are plenty of opportunities to cover your shorts after big market crashes. How else would you be able to see the next short-selling opportunity clearly?
Back to the Global Macro Grind…
If they open the US Equity market where it is indicated this morning, I think I’ll have some fantastic short-selling opportunities. Why? I covered, literally, all of my US Equity Shorts on red on Friday. It’s so much easier to play The Game when you’re on offense with a lead.
I know. Some of you cringe when I tell you what I did, especially if you didn’t do the same thing at the same time. That’s ok. That just means we saw The Game differently at that particular time that I decided to act. With my own money, I take market timing quite seriously.
‘But you wrote this… and you said that…’
Absolutely, I did. But, remember, our process is multi-durational and what I do versus some of what I say very much depends on the duration of the view. In terms of immediate-term TRADEs, I’ll quite often do the opposite of what I’m thinking in terms of TRENDs.
All that really means is that I’d much prefer selling at the top-end of my @Hedgeye Risk Ranges than being consensus after the move down.
In both US and German Equities (I covered my EWG Short on red as well last week), we’ll get the top of my Risk Ranges this morning. Some of you who are new to my risk management #process freak-out a bit when something is “above the top-end of the range.” Don’t do that.
These aren’t your Old Wall “technical levels” of “resistance” (my Bearish @Hedgeye TREND Signal Level of 2966 would be more akin to those). Risk Ranges are dynamic and ever-changing strike-zones to make good, high probability, decisions.
Since the Risk Ranges I publish daily are based on the prior day’s closing price, I obviously see them moving in real-time. That’s why my Real-Time Alerts product exists. I’m trying to help people who follow me with the intraday dynamism of Risk Ranges changing.
“So why didn’t you short the close yesterday – it was at the top of your range?”
I get that question from new subscribers, a lot. The answer certainly isn’t because I was “feeling” something. It’s quite simply because the top-end of my Risk Range on the SP500, for example, shot higher to 2733 when I used 40 for my US Equity Volatility input in my model.
So back to the real-time example:
A) SP500’s refreshed Risk Range = 2
B) Germany’s DAX refreshed Risk Range = 9175-10516
Therefore at or higher than 2733 and 10516, respectively, I get more aggressive on the short side. Not unlike getting aggressive on the long side of a bull market where you buy the damn dips at the LOW end of the Risk Range, at the TOP end I sell the rips in bear markets.
‘Well, what if it’s not a bear market?’
Yep, you mean the Ole Wall All Clear chorus you’ll hear both today and on every big bear market rally day? Well that has a lot to do with what I’m looking at (the singularity of my entire #process) vs. what consensus perma bulls need to see too, doesn’t it?
What’s most interesting about consensus right now is that they sold last week’s lows!
Yep, looking at CFTC non-commercial futures & options positioning (as of last Tuesday’s close when the SP500 got marked up into month end), here’s what the crowd did on that:
A) SPX (Index + E-mini) net SHORT position moved to -69,710 contracts – that registered -2.51x on a 1-year Z-score
B) Dow Bro Jones (mini) net SHORT position move to -9,848 contracts – that registered -2.99x on a 1-year Z-score
Looking back 3 years, that’s actually the MOST bearish positioning for the Dow that’s been recorded. That makes sense as plenty of perma bulls were seeing the Dow drop in “1,000 point” increments, daily. The visceral effect must have been mind-blowing!
So, back to why I covered my shorts on Friday?
- Wednesday (post month-end markups) was a -4.4% smack-down day for the SP500
- Friday was another nasty intraday selloff post the jobs report (great day to book gains)
- I didn’t want to be bearish consensus as it was manifesting into the weekend
Again, that’s just how I saw The Game. In the very-short term, I’ll play it wrong plenty of times in a bear market. But yesterday wasn’t one of those times. So now I can play this morning’s open much more aggressively.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.53-0.90% (bearish)
UST 2yr Yield 0.17-0.35% (bearish)
SPX 2 (bearish)
RUT 1020-1196 (bearish)
DAX 9175-10516 (bearish)
VIX 40.13-70.23 (bullish)
USD 98.07-101.77 (bullish)
Oil (WTI) 17.79-30.10 (bearish)
Gold 1590--1702 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
