“No one ever made a decision because of a number. They need a story.”
- Danny Kahneman
Did the title of my note get you at least a little excited? Let me tell you a story about why I covered all my shorts and went long yesterday. It’s incredibly bullish and tremendous, really.
Actually, it’s not. It’s just math. The aforementioned quote comes from an awesome Chapter Nine in The Man Who Solved The Market where Zuckerman compares and contrasts Peter Lynch’s Magellan Fund strategy with Jim Simon’s Medallion Quant Fund. I loved it.
“From 1977 to 1990, Lynch’s prescient stock picks helped Fidelity’s Magellan Fund grow from a $100M pip-squeak into a $16B power, averaging +29% gains, beating the market in 11 of those years…”
“While Simons seemed to have discovered a perfect way to trade commodities, currencies, and bonds using predictive mathematical models… it wasn’t clear why he thought he’d have a chance of success with stocks…” (pg 160)
For the many Captain Stock Pickers who were born into this business (yours truly included – where else do you think I got the name!) in the 1990s, we’ve realized that Simons didn’t need to tell us a story about “stocks” to crush virtually any money manager who has scaled.
Back to the Global Macro Grind…
But, since most human beings still like to be told stories, here’s my short story on why I went net LONG again yesterday (from my Top 3 Things note that I publish to Institutional Subscribers by 6AM EDT, daily):
Textbook bounce in a lot of big things macro this morning after signaling immediate-term TRADE #oversold yesterday…
- OVERSOLD – is as oversold does – from the UST 10yr Yield to GBP/USD to Russian Stocks (+3.2% this morning) and Commodities (CRB Index), they all signaled oversold (low-end of my Risk Ranges) yesterday, so I covered all my RTA Shorts on that and went net long again (for a trade), buying both Consumer Staples (XLP) and Low Vol Equities (SPLV) on that too – not wild and crazy long, just executing on the process
- VIX – why I’d cover my US Equity Shorts and buy one of the few Bullish @Hedgeye TREND signals (XLP) is pretty straightforward – front-month vol of vol signaled immediate-term TRADE overbought at VIX 48-49 and the implied vol discount on SPY moved 1200 basis points from where it was complacently priced on Friday’s Pump close; immediate-term downside in VIX to 36.17, not sure we’ll get that, but… open minded!
- GOLD – like all of the aforementioned immediate-term TRADE #oversold signals, both Gold and Silver probed the low-end of their respective @Hedgeye Risk Ranges yesterday and are both up +1.0% and +1.4%, respectively, this morning – Gold Volatility (GVZ) took a peek at the 31 level yesterday and backed off – that’s very bullish for Gold’s investable Bullish @Hedgeye TREND view
The fact of the matter is that most of the (useful) words that I write imply ROC (rate of change) and @Hedgeye Risk Range numbers:
- UST 10yr Yield 0.54-0.78% (bearish)
- UST 2yr Yield 0.17-0.27% (bearish)
- SPX 2 (bearish)
- RUT 1142-1240 (bearish)
- Consumer Staples (XLP) 56.38-61.10 (bullish)
- VIX 36.17-49.16 (bullish)
- USD 98.90-100.95 (bullish)
- GBP/USD 1.22-1.26 (bearish)
- Oil (WTI) 10.57-20.42 (bearish)
- Gold 1662--1789 (bullish)
In fractal math, we call these Similar Sets. Those are the Top 10 sets of immediate-term TRADE Risk Ranges combined with intermediate-term @Hedgeye TREND Signals (in brackets) that informed why I was a buyer yesterday.
My strategy note could (maybe should) end right here.
Would that be helpful? Serious question – so please let me know… because the less time I spend writing out words on why, the more time I have to do more… and the less time you need for me to tell you a story!
*It took me 25 minutes to write this today. It usually takes me 45-50 minutes.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.54-0.78% (bearish)
SPX 2 (bearish)
RUT 1142-1240 (bearish)
Utilities (XLU) 55.99-61.68 (bullish)
REITS (VNQ) 70.08-79.30 (bearish)
Consumer Staples (XLP) 56.38-61.10 (bullish)
Tech (XLK) 82.28-90.34 (neutral)
DAX 10102-10793 (bearish)
VIX 36.17-49.16 (bullish)
USD 98.90-100.95 (bullish)
EUR/USD 1.07-1.09 (bearish)
Oil (WTI) 10.57-20.42 (bearish)
Gold 1662--1789 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
