“Some revolutions begin with a gunshot, others with a party.”
- Steven Kotler
Got flow this morning? Get with it already. This is the part of the NASDAQ and Chinese Internet Stock party that gets real good!
Steven Kotler captains the Flow Genome Project and wrote an excellent 2017 book I’m reading right now called Stealing Fire: How Silicon Valley, the Navy SEALS, and Maverick Scientists Are Revolutionizing the Way We Live and Work.
Why do stocks only go up? Well, one narrative the Old Wall hasn’t run with yet is that there was a big bender that “kicked off on a Friday night in downtown Athens, in 415 BCE. Alcibiades, a prominent Greek General, had invited a small circle of friends to his villa for what was to become one of the more infamous bacchanals in history.”
Back to the Global Macro Grind…
Wait on it… “within less than an hour, the effects took hold… fears, terrors, quiverings, mortal sweats, and a lethargic stupor overwhelmed us” per my man Plutarch. (pg 1)
Bar Stool Bro, the NASDAQ makes all-time highs, daily, and China’s Shanghai Comp is +16.7% in a month. Both continue to signal Bullish TREND @Hedgeye. There is no reason to leave that part of the party, until the party ends!
Make no mistake, when it ends, it will end, abruptly. Do I have a process to measure and map that “risk off” timing? Yes. Will I nail making the turn? I don’t know. My only certainty is that the crowd won’t.
Here’s how I think about it:
A) POSITIVE MOMENTUM (as a Factor Exposure) is getting more positive, daily, on the 2 aforementioned indexes
B) NEGATIVE MOMENTUM (US Dollar, Russell 200, US Financials are 3 of the biggest ones that I’m short)
C) Eventually my Risk Range #process is going to signal a lower-high in A) as the bottom falls out in B)
When is eventually? It might be tomorrow, next week, or next month. But it’s probably not today. Why?
A) NASDAQ, KWEB (Chinese Internet), MSFT, AAPL, and AMZN are all signaling higher-highs in my Risk Ranges… and
B) US Dollar Index, IWM (Russell), and XLF (Financials) are signaling both higher-lows and lower-highs
So… the most obvious “trade” any long/short hedge fund is making money in, daily, should continue alongside blazingly obvious Macro trades like Long Commodities vs. Short USD, Long Growth vs. Short Value, etc.
Other than the big bender from 415 BCE just ending, what could be a catalyst for the music to stop?
A: Earnings Season.
Blood Bath & Beyond (BBBY) reported reality last night and the stock is down -9% pre-market, unless Mnuchin’s PPT is smart enough to buy it now to change the CNBC morning narrative. Yesterday’s was “buy Kohls (KSS)” on an Old Wall upgrade.
Yes, I’d short KSS on the open and anything in the NEGATIVE MOMENTUM basket that continues to make lower-highs that is sensitive, economically, to the US recession resuming alongside a re-acceleration in COVID cases.
NEG MO = Casinos, Cruisers, Restaurants, etc.
For those of you who would prefer the more intellectually stimulating Quad Map to explain why, here’s Quadzilla’s thoughts on timing, from both a top-down and bottom-up ROC (rate of change) perspective:
a. JUL through AUG: Q2 earnings season = Deep “Micro” Quad 4
b. AUG through NOV: Phase 3 = Negative RoC economic data
c. OCT through NOV: Q3 earnings season = Deep “Micro” Quad 3
So it’s either the blood bath in corporate P&L terms (Deep Micro #Quad4) that starts, big time, with the big banks reporting reality next week. Or it’s the resumption of a non-V (i.e. a W-shaped) non-recovery in the US economy in AUG.
Or… and wait on it (and please don’t tell anyone who is long any of this because I’m sure no one would be affected by any asymmetric earnings report surprise)…
It’s going to be 1 (or some) of the 5 stocks that make up 40% of the NASDAQ dropping a bomb on the party. Imagine all 3 of these things happen at the same time? It should surprise “no one”, but everyone all at the same time.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.62-0.71% (bearish)
SPX 3006-3195 (bearish)
RUT 1 (bearish)
NASDAQ 9916-10,619 (bullish)
Tech (XLK) 102.14-108.67 (bullish)
Financials (XLF) 22.09-23.74 (bearish)
Shanghai Comp 3143-3474 (bullish)
VIX 26.84-34.93 (bullish)
USD 96.20-97.46 (bearish)
Oil (WTI) 37.89-41.78 (bullish)
Gold 1 (bullish)
Copper 2.64-2.88 (bullish)
MSFT 197-215 (bullish)
AAPL 353-384 (bullish)
AMZN 2 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
