“The penetration of that particular ovum by that particular spermatozoom.”
- Simone de Beauvoir
Do particular moments in your life matter or is it the moving “average” of things? Are there particular points and inflections in causal factors or do you look up a “valuation” of where something “should” matter?
In the US stock market you will find bubbles and narratives that bend the mind to infinity and beyond. In real-life games of sport, chance, etc., what makes for a successful pro (and Full Investing Cycle portfolio over time) is far different from what you watch on Old Wall TV.
The aforementioned quote comes from Maria Konnikova’s book that I cited yesterday: “The Biggest Bluff”, where she “wanted to know how much of her life she should take credit for and how much was just stupid luck.” Humbly ask yourself that same question…
Back to the Global Macro Grind…
How many people are “feeling it”… you know, like they nailed it: Long Apple, Tesla, Bitcoin, Gold, etc.? A: with 75 MILLION new online American brokerage accounts this year, a LOT.
“How does perception of being in control in situations where luck is queen play out in our decision making?” -Konnikova, pg 13
At $2 TRILLION in Apple (AAPL) market cap yesterday, there was a LOT of uninformed volume trading at the edges of this important risk management question. At $350 BILLION market cap for Tesla (TSLA) and $2075/oz Gold there was too!
When we look back at this moment in US history (years from now), I am sure all of this will be crystal clear to everyone on CNBC… but for the poor bastards who are the suckers at the table, the real-world losses will be in their accounts.
Don’t worry, I’m not making the big “call” that the trivial two trillion dollar headlines for AAPL mean it’s the “top.” Instead, I’ll review my decision making #process for this particular moment in macro market time and space:
A) Let’s start with impact – at 7% and 15% of SPY and NASDAQ, respectively, AAPL is obviously a Macro Risk Factor
B) Like all major macro market risk factors (USD, Rates, etc.), the volatility of AAPL’s volatility matters most to me
C) Like anything else that ticks, my TRADE/TREND/TAIL levels, Risk Ranges, and Implied Vol rates of change matter
So let’s break that down into particular slices of information that the market is giving us on AAPL this morning:
- AAPL TRADE Support = $454, TREND support = $382, TAIL Support = $311
- AAPL Risk Range = $436-470 with front-month AAPL Volatility knocking on the door of a TREND breakout > 39
- AAPL’s implied volatility DISCOUNT drooped to -18% (vs. 30-day realized) yesterday, 1-month ago it was +30%
That’s right, only 1-month ago you could have bought AAPL at $370/share and made +25%. But you would have been buying it when consensus was buying protection (implied vol PREMIUM of +30%) into an earnings event that they were wrongly pricing as risky!
You can do the math on the market cap gained in a month (TSLA’s market cap did in 1-week what people used to call “peak valuation”). The risk management point here has nothing to do with market cap. It has everything to do with the particular volatility of its price.
The way I read this is the way I look at anything I’m long or short (I’m long AAPL via XLK and QQQ):
A) The probability of TRADE and TREND support levels breaking for AAPL goes straight up if AAPL Volatility does, from here
B) It’s not going to be linear-math like this, but one way to think about draw-down risk is -17%, from here, on a vol breakout
If the volatility of volatility (or vol of vol) doesn’t breakout, everyone still plays lucky on the long side. If it does, it does, and -17% to $382 TREND support is immediately in play as a higher-probability dealer-wins hand against a group of tourists who are “feeling” hot!
Obviously $382/share isn’t the bargain that $370 was a month ago. I’d bet at least $25k that if I was able to poll 100 Hoodies that own AAPL at $462 how much they need to be up (to get back to break-even on a 17% loss), 90% plus wouldn’t know it’s +20.5%.
Loss aversion is brutal on the unaware and untrained behavorial mind.
That’s why, again, on an AAPL Volatility Breakout, the math I just used isn’t going to happen that concisely. That’s the thing about power-laws and non-linearity – it is about immediately recognizing the penetration at particular moments. Have a process for those.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.52-0.71% (bearish)
UST 2yr Yield 0.11-0.16% (bearish)
SPX 3 (bullish)
RUT 1 (bearish)
NASDAQ 10,801-11,278 (bullish)
Tech (XLK) 111.12-115.99 (bullish)
REITS (XLRE) 35.12-36.75 (bullish)
Financials (XLF) 23.99-25.51 (bearish)
VIX 20.71-28.35 (bearish)
USD 92.25-93.98 (bearish)
Gold 1 (bullish)
Silver 25.06-29.47 (bullish)
Copper 2.85-3.03 (bullish)
AAPL 436-470 (bullish)
TSLA 1 (bullish)
Bitcoin 11,405-12,170 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
