“Break it down and make a plan.”
-Anders Ericsson
A simple but critical point for any risk management (trading) and investment process, that quote is. It comes from a book I was studying this weekend called Peak – Secrets From The New Science of Expertise, by Anders Ericsson and Robert Pool.
What I love about this book is that it’s focused on something that I not only believe in but apply to my process: deliberate study.
You can either wake up in the morning and work deliberately (Rate of Change, Time Series, Quads) or naively (Chasing headlines, Macro Tourism). “Naïve practice is just doing something repeatedly and expecting the repetition alone will improve one’s performance.” (pg 14)
Back to the Global Macro Grind…
Welcome to another Macro Monday @Hedgeye. No this is not ground hog day. It’s just another day to deliberately measure and map whether A) the US and Global Economy is in Deep #Quad4 in Q2 and B) if @Hedgeye TREND Signals still agree with that.
Summary Point: Yes, on both.
As a matter of process, I like to start with what’s going on in the Global Currency market:
- US Dollar Index corrected -1.3% last week to +2.8% YTD but remains Bullish TREND @Hedgeye (higher again this morning)
- EUR/USD had a Counter @Hedgeye TREND bounce of +1.5% to sell into late last week and remains Bearish TREND
- Yen was up another +0.6% vs. USD last week moving back to Bullish @Hedgeye TREND
- GBP/USD had a Counter @Hedgeye TREND bounce of +1.1% to sell into late last week and remains Bearish TREND
- Russian Ruble was down another -1.0% vs. USD last week to -17.7% YTD and remains Bearish TREND @Hedgeye
- Turkish Lira was down another -0.5% vs. USD last week to -15.1% YTD and remains Bearish TREND @Hedgeye
I’m only using YTD (year-to-date) right now because it reflects the > 3 month TREND duration my process cares most on. There are plenty of Counter @Hedgeye TREND moves during bear markets. Neither the Russians or Turks got one on a Dollar Down week!
A classic Counter @Hedgeye TREND move (i.e. a TRADE) that correlated with Down Dollar last week was Up Commodities:
A) CRB Commodities Index was +4.3% to -36.7% YTD and remains Bearish TREND @Hedgeye
B) Oil (WTI) was +16.8% last week to -66.7% YTD and remains Bearish TREND @Hedgeye
That said, similar to Down Ruble and Lira, some key commodities still deflated during a Dollar Down week:
A) Copper deflated another -1.1% last week to -17.9% YTD and remains Bearish @Hedgeye TREND
B) Corn deflated another -1.4% last week to -20.6% YTD and remains Bearish @Hedgeye TREND
Remember the most tremendous trade deal in the history of incredible deals for US farmers?
The other big thing that happened in Macro last week was another late-week reversal for US Equities. Given the FOMO out there it may not “feel” like the SP500 was down for the 6th week in the last 9, but weekly ROC (rate of change) math doesn’t do feelings.
Interestingly, with the VIX having a +3.5% week to +170% YTD:
A) Utilities (XLU) were down -4.2% last week to -13.5% YTD … and
B) Financials (XLF) were up +1.5% last week to -28.3%
Yet, the bond market did virtually nothing (UST 10yr Yield up 1 basis point last week) to confirm what some were hoping for in an investable move for “Value” (with the VIX making another run for 40 this morning, almost every Sector Style remains un-investable).
That’s not to say there aren’t opportunities to rent Equity markets for immediate-term @Hedgeye TRADEs. Those are for 3 weeks or less, though, don’t forget. Tourists sometimes mistake TRADEs “off the lows” for new, investable, intermediate-term TRENDs.
From a Factor Exposure perspective, all you have to do is look at how things like VALUE, LEVERAGE, and HIGH BETA did on FRI vs. how they did MON-WED of last week. As you can see in today’s Chart of The Day, the TREND (3month returns) for those is a train wreck.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.57-0.67% (bearish)
SPX 2 (bearish)
RUT 1150-1366 (bearish)
Utilities (XLU) 55.03-59.90 (bearish)
Financials (XLF) 19.98-23.53 (bearish)
VIX 30.02-47.14 (bullish)
USD 98.85-101.17 (bullish)
EUR/USD 1.07-1.10 (bearish)
USD/YEN 106.10-108.29 (bearish)
GBP/USD 1.22-1.26 (bearish)
Oil (WTI) 9.75-20.70 (bearish)
Gold 1678--1760 (bullish)
Copper 2.23-2.38 (bearish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
