“Blindfolded chess offers one of the most dramatic examples of what is possible to accomplish with purposeful practice.”
- Anders Ericsson

While some of our new subscribers may have thought that the title of this morning’s Early Look had to do with the latest bout of uniquely American FOMO in US Equity Futures, I was actually alluding to being Long Treasuries and Gold.

For 1 year and 8 months now, measuring and mapping The Cycle, deliberately, in ROC (rate of change) terms has had me buying every damn dip in both short and long-term Treasuries. Gold, of course, has worked inversely with Treasury yields.

The aforementioned quote comes from a book that many of you are studying alongside me called Peak. In a great chapter titled Mental Representations, Ericsson tells us about Alexander Alekhine’s chess #process in 1924:

“In front of each challenger was a chessboard on which that player’s game with Alekhine would be played out. Alekhine could see none of the boards…

Twenty-six boards, 832 individual pieces, and 1,664 individual squares to keep track of… Alekhine had won 16 games, lost 5, and played to a draw in 5 more.” (pages 51-52) Do you think he’d have been phased if his competition had pre game FOMO?

A Blindfolded Bull - 10.05.2017 I trust my gut cartoon  2

Back to the Global Macro Grind…

Welcome to Macro Tuesday @Hedgeye! On the 1st US market day of every week we deliberately contextualize short-term (week-over-week) macro market moves within the context of both the Full Investing Cycle and @Hedgeye TREND signals.

Starting with the Global Currency market:

  1. US Dollar Index corrected -0.5% within its Full Investing Cycle Bullish @Hedgeye TREND last week
  2. EUR/USD was +0.8% last week approaching the top-end of its Risk Range and remains Bearish TREND
  3. Yen corrected -0.5% vs. USD last week but remains Bullish TREND
  4. GBP/USD was +0.5% last week but remains Bearish TREND @Hedgeye  
  5. Canadian Dollar was +0.8% vs. USD last week but also remains Bearish TREND @Hedgeye  

You see, rather than having panic attacks about pre-market moves, we’re most accurate in contextualizing macro market moves within the longer-term cycle. The US Dollar has been Bullish @Hedgeye TREND since Q2 of 2018, don’t forget.

With USD correcting, Commodities had their commensurate Counter @Hedgeye TREND bounce last week:

  1. CRB Commodities Index bounced +3.8% last week, taking their 3-month crash to -25.8%
  2. Oil (WTI) had a big bear market bounce of +12.6% last week, taking its 3-month crash to -37.9%
  3. Copper bounced +2.4% last week, taking its 3-month drawdown to -8.9%

If you’re new to subscribing to Hedgeye, we prefer to not have our entire net wealth “invested”, pro-cyclically, in asset classes that crash 25-40% and/or have frequent 5-10% drawdowns in need of government bailouts.

From a US Equity Sector Style perspective, the best performance came in those Sectors that remain in crash mode:

A) Industrials (XLI) had a bear market bounce of +7.4% last week and have still crashed -23.6% in the last 3 months
B) Energy Stocks (XLE) had a bear market bounce of +6.9% last week and have still crashed -28.9% in the last 3 months

Whereas our favorite Sector Style, Healthcare (XLV) was actually down -0.8% on the week taking its 3-month correction (i.e. not a crash or drawdown of consequence) to -3.7%.

In terms of Factor Exposures, the best place to be last week (and probably this morning) was in the worst places you could have had your hard earned capital:

A) HIGH DEBT/EV stocks were +6.7% last week, taking their 3-month crash to -28.5%
B) HIGH BETA stocks were +9.5% last week, taking their 3-month crash to -32.5%
C) SMALL CAP stocks were +8.7% last week, taking their 3-month crash to -30.5%

All the while, like my Healthcare holdings, Gold corrected -0.8% last week taking its 3-month appreciation to +5.6%. I’m cool with that. I can handle my Treasuries correcting like they did last week too.

Both the 2 and 10yr US Treasury Yields were up +2 basis points last week and are down -119 and -81 basis points, respectively, in the last 3 months. Boring without the blowup risk of The Cycle these core asset allocations have been.

You can blindfold me this morning and tell me that US equity futures are up or down 2-3%. Short-term direction won’t change what I think about playing out the Full Investing Cycle. That’s why I tend to win a lot more than I lose over time.

Immediate-term @Hedgeye Risk Range with TREND signal in brackets:

UST 10yr Yield 0.60-0.74% (bearish)
UST 2yr Yield 0.14-0.20% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
NASDAQ 8 (bullish)
Healthcare (XLV) 98.38-101.78 (bullish)
Industrials (XLI) 57.68-65.97 (bearish)
VIX 26.09-36.55 (bullish)
USD 98.90-100.85 (bullish)
EUR/USD 1.07-1.10 (bearish)
USD/YEN 106.62-107.99 (bearish)
GBP/USD 1.21-1.23 (bearish)
Oil (WTI) 24.07-36.47 (bearish)
Gold 1 (bullish)
Copper 2.30-2.46 (bearish)

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer

A Blindfolded Bull - Chart of the Day