“You’re more likely to pick up patterns in betting, tells and things like that. There’s so much happening.”
- Erik Siedel
“So”… you’re saying there’s more to The Game than waking up with a visceral reaction to where TSLA and TQQQ (Triple Levered QQQ’s) are trading this morning? There’s so much happening in Global Macro, every day – pay close attention.
The aforementioned quote comes from a chapter in Konnikova’s The Biggest Bluff, titled “Texting Your Way Out Of Millions.”
“This is the funny thing about modern poker: even top players are sitting there, on their phones, and they’re missing all the information that’s on the table. It’s really kind of insane.” (pg 142)
Back to the Global Macro Grind…
“Insane”? What, precisely, about anything that’s happened in the US stock market in 2020 is insane? This is all perfectly normal trading behavior, no? Buy some NKLA ahead of the SEC investigation, eh? Roll the bones, baby!
Some people think my 430AM EDT daily wake-ups are insane. I don’t completely disagree with that. But I’m not smart enough to have market opinions without doing the deliberate data-driven work.
Here are the Top 3 Things I am noticing at the Global Macro table this morning:
Looks like Citigroup (C) just saw an inverted-V in their P&L in Q3…
- USD – Dollar Down (again) this morning gets the SPY machine excited with a TRENDING inverse correlation (90-day duration) at an eye-popping -0.95 (Commodities love that too), but today I’m registering a potentially stealth higher-low in my USD Index Risk Range (which also gives me my 1st lower-highs in Euros, Yens, and GBP vs. USD) – prelude to #Quad4 in Q4? Stay tuned…
- VOLATILITY – no worries on FX correlations to equity beta, as long as TSLA and TQQQ (triple levered long NASDAQ) are indicated up, its bubble chasing time again, baby! All the early week fun could easily (and violently) reverse if NASDAQ Volatility (VXN) can’t break-down below 32 and stay there; Gold Volatility (GVZ) of 20 continues to diverge, big time
- QUADS – diverging globally and shifting locally like tectonic fractal plates – Chinese Industrial Production #accelerates to +5.6% y/y in AUG whereas USA’s IP will be negative y/y this morning – we still have China in #Quad2 in Q3, whereas it’s a wide open question as to whether or not USA is about to go from #Quad3 to #Quad4 in Q4… Dollar & Data dependent that call will be
*Remember: risk management isn’t about the moving “average” or “valuation” of things – it’s about noticing particular things. So, let’s drill down on those Top 3 Things with more fractal dimension and detail:
1. USD
A) Low-end of my Risk Range for the USD Index just moved from 91.99 to 92.21
B) FX Volatility just ticked down to 9.37 (using JPM Global FX Volatility Index)
C) 15-day inverse correlation between SPY and USD is -0.73 (for USD and Gold its -0.56)
2. VOLATILITY
A) NASDAQ Volatility (VXN) closed > @Hedgeye TREND at 33.56 with immediate-term upside to 44-45
B) APPL Volatility (VXAPL) closed > @Hedgeye TREND at 49.29 with immediate-term upside to 69-70
C) Gold Volatility (GVZ) closed < @Hedgeye TREND at 20.91 with a Risk Range of 18-24
3. QUADS
A) China’s economic data is in #Quad1 or #Quad2 for 4 straight quarters
B) USA’s economic data went from Deep #Quad4 in Q2 to bouncing into a non-V…
C) And now our volatility signals and Quad data sees a rising probability of #Quad4 in Q4
In other words, all 9 of those particular observations in my notebook are signaling that a particular risk (that USA diverges, again, vs. China into #Quad4) is not only is starting to get “priced in”, but could easily get priced in at a faster pace, from here.
What if it doesn’t? Well, that’s easy. You get more macro market days like yesterday (i.e. USA in a Straight #Quad3):
A) Dollar Down (yesterday)
B) Rates flattish, Treasuries (TLT) up small
C) Gold and Gold Miners (GDX) up
D) REITS (XLRE) leading at +2.5% on the day … yes
E) Tech (XLK) up +2.1% on the day
*Also remember that the only Quad that perma Tech Bulls get body bagged in is #Quad4. It’s also the Quad for Dollar Up.
Am I willing to “miss” owning Tech, for a day? A: 100%. Don’t forget I don’t have to chase TSLA or a benchmark index to get paid. My #1 goal is to preserve and protect my hard earned capital so that I can make the next high probability Signal & Quad pivots.
I can tell you with 100% certainty that if AAPL sees 70 Vol, the newbs chasing TQQQ will be texting each other in a panic!
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.61-0.73% (bearish)
SPX 3 (bearish)
RUT 1 (bearish)
NASDAQ 10,424-11,297 (neutral)
Tech (XLK) 107.89-119.02 (neutral)
REITS (XLRE) 35.22-37.12 (bullish)
Financials (XLF) 24.30-25.55 (bearish)
Shanghai Comp 3195-3430 (bullish)
VIX 24.21-34.09 (bullish)
USD 92.21-93.79 (bearish)
Oil (WTI) 34.75-39.47 (bearish)
Gold 1 (bullish)
Silver 26.06-28.63 (bullish)
Copper 2.97-3.09 (bullish)
MSFT 192-215 (neutral)
AAPL 103-121 (neutral)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
