“He was prepared to recognize and internalize that what had been trusted for centuries might be wrong.”
- Mario Livio
Forget centuries for a US stock market FOMO minute, imagine you trusted some Moving Monkey as academic and/or back-tested “support” (right before critical economic Phase Transitions) for the last 3 decades?
The aforementioned quote comes from Livio’s new book, Galileo And The Science Deniers. He reminds us that “Galileo based his convictions on experimental evidence… he also had the foresight to assert forcefully that the road to scientific truth is paved with patient experimentation, leading to mathematical laws that weave all the observed facts into one harmonious tapestry.” (pg 4)
I am not Galileo. I am Mucker. And I humbly submit that when I look at macro market risks through the Rate of Change telescope of both the economic Quads (growth and inflation) and company Pods (revenues and profits), I see things differently.
Back to the Global Macro Grind…
Ask your local market proctologist or Old Wall chartist if they know what the difference is between a non-trending ROC (rate of change) acceleration and a secant?
While a ROC #acceleration off a crashed out low is what it is, what happens when that acceleration makes:
A) A big lower-cycle-high … and
B) Starts slowing, again?
From what I can see, most “bottom is in” bulls want to draw a straight arrow, up into the right, from:
A) The March/April low to…
B) Sometime way out in the future…
… without having to traverse the next 1-3 quarters of time and space, assuming it’s all good in between (provided the Fed has their back and their simple moving averages “hold support”).
In calculus, the secant line is just that – a straight line joining 2 points in a function.
While the average ROC (rate of change) of a function between 2 points and the slope between 2 points are the same thing, it’s not the averaging of ROCs with an upward sloping assumption (towards where your “returns” need to be justified) that matters.
It’s the particular accelerations and decelerations that matter from particular points in a market’s volatility regime.
That’ll be enough math for you to gargle down this morning while you keep your other eye on the latest CNBC or Bar Stool Sports narrative on why “stocks only go up.”
In real-time ROC news, we have an interesting, but not surprising, similar set in macro motion this morning:
A) Japan’s Nikkei down overnight making a big lower-high vs. it’s early June high … and
B) The beloved SP500 down, pre-open, after making another big lower-high vs. June 8th’s as well
Japan’s lower-high came on ROC news that Japanese Household Spending #slowed in May to -16.2% year-over-year (that’s a nasty consumption depression never mind recession) vs. -11.1% in April.
If you pull the time and space charts all the way back, you’ll find that Japan’s central-market-planning of both their stock and bond markets did pretty much nothing for The People of Japan, economically. It also killed their banks.
In another major socialized state (France), it hasn’t worked either. The French Stock market (CAC40) made another big-lower-high yesterday too and has resumed its bear market decline, down -1.1% this morning taking its drawdown to -17.7% since FEB.
But “don’t fight the Fed.”
Ok, sounds catchy, but I shorted more France (EWQ) on green yesterday and I shorted more US Financials (XLF) and Junk Bonds (JNK) on green yesterday too. I didn’t short SPY (haven’t since 2019), but I probably should have.
Why? Consensus capitulated, covering their SP500 Index and e-mini shorts at this time last week.
As you can see in today’s Chart of The Day (non-commercial CFTC futures and options positioning), the net SHORT SPX position has cannon-balled down to -61,437 contracts from a peak bearish positioning of -319,133 contracts in June.
In addition to measuring and mapping the particular ROCs of market positioning, we’re doing the same for market correlations. SPY’s 30-day inverse correlation with the US Dollar just dropped from -0.9 to -0.67.
That particularly matters within the lens of my process’s telescope too.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.62-0.73% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
Tech (XLK) 100.90-107.35 (bullish)
Financials (XLF) 22.04-23.98 (bearish)
Shanghai Comp 3061-3378 (bullish)
Nikkei 211 (neutral)
VIX 26.12-35.90 (bullish)
USD 96.37-97.80 (bearish)
Oil (WTI) 37.44-41.34 (bullish)
Gold 1 (bullish)
Copper 2.62-2.79 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
