“I have always been addicted to recognizing patterns.”
- Allen Gannett
I’m looking forward to having a Real Conversation @HedgeyeTV this afternoon with the author of The Creative Curve, Allen Gannett. Allen is a Tech entrepreneur who is the CEO of a company called TrackMaven, which he founded in 2012.
Back to the Global Macro Grind…
I don’t know about you, but I’d much rather read a book like Gannett’s (I try to keep a reading pace of 1 book every 10 days), where I am going to learn something new, than some Old Wall report that is light on numbers and heavy on narratives.
At this point in my career, I don’t have any time left in my work day to read anything but behavioral headlines and numbers.
Headlines matter, behaviorally, because they often force what my friend and Goldman Alum, Buddy Carter, calls “uninformed volume” to transact at the edges of my @Hedgeye Risk Ranges.
For example:
A) After 3 straight up days for the US Dollar Index and 3 straight down days for Gold…
B) One of the best back-tested contra-indicator journos @Bloomberg will tweet bearish on Gold
This probably won’t surprise you, but for the last decade I have been building and curating a Contra-Stream of market tweeters on Twitter. When combined with my Risk Ranges, the thing is nasty good at recognizing behavioral patterns.
Patterns matter in markets because they perpetuate Similar Sets that are causal. Check these ones out:
A) 15-day inverse correlation between USD and SPY = -0.87
B) 15-day inverse correlation between USD and Gold = -0.87
Those are what I call immediate-term TRADEs @Hedgeye (duration = 3 weeks or less). Then there are @Hedgeye TRENDs:
A) 90-day inverse correlation between USD and SPY = -0.93
B) 90-day inverse correlation between USD and Gold = -0.93
My intermediate-term @Hedgeye TREND duration is 3 months or more. So, if I go for “more” time and space, to 120 days:
A) 120-day inverse correlation between USD and SPY = -0.96
B) 120-day inverse correlation between USD and Gold = -0.93
Why are the 15 and 90 day durations identical to the decimal point and diverging by 3 basis points at 120 days? I don’t know. And I definitely don’t care. It’s all one and the same thing right now, driving cross-asset-class correlations.
For the last 3-4 months, this is why getting the direction of the US Dollar right has helped me get a lot of big moves in macro right. It has made what is generally a difficult job, easier, for now.
It will end. When? I don’t know. I don’t care about that either.
But I do care about when Joey Journo tweets. Old Wall Media has a loud rear-view looking signal. We make money off that.
I’d never use a USD/Gold/Joey signal on it’s own, however. In deliberately measuring and mapping market patterns through the lens of fractal dimensions, what you’ll realize is that Similar Sets perpetuate an equivalence class of totally ordered sets.
I’m not going to geek out on fractal facts any further, but here’s how I’m reading the math on some macro numbers this AM:
- US Equity Volatility (VIX) signaling lower-highs within a Bullish @Hedgeye TREND
- US Investment Grade Credit (LQD) signaling higher-lows within a Bullish @Hedgeye TREND
- Corn and Copper signaling higher-lows within their respective Bullish @Hedgeye TRENDs
- Chinese Equities (KBA) signaling higher-lows within a Bullish @Hedgeye TREND
- Taiwanese Equities (EWT) signaling higher-lows and immediate-term TRADE oversold like KBA is
In other words, using a multi-factor (all of Macro, not the Dow, in points) and multi-duration (TRADE and TREND) pattern recognition #process, you’ll see everything is signaling the same thing at the same particular time.
Since Dollar Up is deflationary, its recent Bullish TRADE duration move has delivered immediate-term TRADE #oversold signals in everything from Corn to Credit. In the immediate-term, only a Dollar Down move will deliver asset price inflation.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.64-0.70% (bearish)
UST 2yr Yield 0.10-0.15% (bearish)
SPX 3 (bearish)
RUT 1 (bearish)
NASDAQ 10,508-11,038 (bearish)
Financials (XLF) 22.62-24.38 (bearish)
Shanghai Comp 3 (bullish)
VIX 24.60-30.05 (bullish)
USD 92.28-94.81 (bearish)
EUR/USD 1.16-1.19 (bullish)
USD/YEN 104.13-105.97 (bearish)
Oil (WTI) 37.36-42.22 (neutral)
Gold 1 (bullish)
Copper 2.94-3.12 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
