“Agility is the ability to move and adjust quickly and easily.”
- US Army Field Manual
Unless you want to have a lot of casualties and say that “no one” could have seen any risk coming, that is. Post John Boyd revolutionizing the decision making processes of the US Air Force, agility became a major doctrine of US military strategy.
In the US Navy’s Naval Command & Control manual (NDP 6): “Maintaining rapid decision and execution cycles and thus a rapid tempo of operations requires that seniors and subordinates alike have an accurate image of the battle space and shared vision of what needs to be done.” -Certain To Win, pg 71
If you didn’t see yesterday’s US Equity market risk rising as the NASDAQ and TSLA ramped to intraday all-time highs, you weren’t paying close enough attention. The vol of vol (volatility of volatility) in my model was moving, big time, on big volume.
Back to the Global Macro Grind…
No worries though. The PPT can buy US FOMO Equity Futures for 15 minutes when no volume is trading between 2-3AM (ramping them 12 handles in that time span last night) and some people wakeup “feeling” there’s no risk, at all.
That’s awesome, really.
What else could someone who is using modern fractal math ask for as competition for alpha? God willing, the Old Wall will be willfully blind to OODA (Observe, Orient, Decide, Act) Loops of volatility for a long time to come.
So what the heck happened yesterday?
A) It wasn’t so much about yesterday as it was about what happened on Friday… and
B) By the time NASDAQ Volatility broke out yesterday, it happened too fast for too many to react
Now if you have Hoodie friends who want to lose money when “everyone else got killed”, tell them they are more than welcome to do so. For my own money, I’ll sell into volatility breakouts almost 100% of the time, preserving and protecting my capital.
Mathematically speaking, what happened?
A) Friday had 2 parts – a cluster of NASDAQ Volatility (VXN) spiked in the morning and faded in the afternoon
B) All the while, SPY’s TRENDING Regime of Volatility remained intact as…
C) Total US Equity market VOLUME #decelerated -12% vs. its 1-month average on an “up” day for the surface area of PRICE
Then, what happened yesterday was relatively easy to observe in the OODA Loop:
A) FOMO Futures were marked up (as usual) on the open after a weekend of bad COVID Cases #accelerating news …
B) But neither the VIX nor the VXN were down in an up tape … and
C) VOLUME exploded to the upside as VXN (NASDAQ Vol) broke above @Hedgeye TREND resistance of 33.04
In one of the biggest intraday reversals for the NASDAQ (from an all-time high) since March of 2000 (not a good reference point for V-Loving Fed Fans that see no bubbles), Total US Equity Market Volume #accelerated:
- +32% vs. Friday’s slow-volume all-time QQQ high and …
- +18% vs. its 1-month average
If your friends didn’t know that The Machine moves when 1-day and 1-month momentum moves, now they know. And if all of this sounds like being “in the weeds”, that’s cool with me. I’d prefer to be on SEAL Team 6 than on Robin Tracker with some “charts.”
‘Ok KM, sounds like you might have seen something there that mattered, in a particular market moment, that really mattered to my daily outcome too… but now what?’
A: Prepare to be agile.
There’s a reason why some of the most successful warriors in US military history move in small groups. Just because being “too big to move” is true, doesn’t mean there aren’t massive auto-correlated risks associated with the crowd being long one big exposure.
As I reviewed prior to Friday’s OODA observation. The setup was getting stretched on POSITIVE PRICE MOMENTUM and all I needed to see in my risk management model was A) a breakout in volatility that B) perpetuated lower-highs in my Risk Ranges.
As you can see this morning, from Tech (XLK) to one of the big 2 stocks that constitutes 40% of the Sector Style (MSFT), this morning we have the 1st lower-highs in my data set. Head-fake or something new? I don’t know. But I do know what I’m observing.
Don’t fight The Volatility.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.60-0.68% (bearish)
SPX 3084-3197 (bearish)
RUT 1 (bearish)
NASDAQ 10,003-10,715 (bullish)
Tech (XLK) 103.08-109.16 (bullish)
Financials (XLF) 22.09-23.99 (bearish)
Shanghai Comp 3 (bullish)
VIX 28.89-34.61 (bullish)
USD 96.01-97.20 (bearish)
GBP/USD 1.23-1.27 (bullish)
Oil (WTI) 38.38-41.32 (bullish)
Gold 1 (bullish)
Copper 2.80-2.97 (bullish)
MSFT 200-217 (bullish)
TSLA 1 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
