“Tech/Growth leadership tabbed in part to rising COVID cases.”
- Old Wall Media

With no #MegaStim progress over the weekend (which was in line with our Washington office’s view during the Thursday/Friday rally in the US stock market that was allegedly due to “stimulus hopes”), I guess ye Olde Wall needed a new narrative.

Why Are Stocks Higher? - 10.12.2020 buy and hold cartoon

Back to the Global Macro Grind…

What’s interesting about the “stocks up, covid up” narrative is that it’s actually an accurate one IF the US economy is in #Quad3. If COVID Is #accelerating AND inflation is decelerating, at the same time, that’s #Quad4. Tech gets hammered in #Quad4.

So, which one is it? I’m never sure. But I do believe that the bond market has a much better handle on this than Hoodies & Hedgies chasing call options (Hoodies) and covering their consensus net SHORT position in QQQ’s (Hedgies) from SEP’s NASDAQ lows…

The setup for the NASDAQ in particular this morning is an obvious SELL too:

  1. NASDAQ’s price is at the top end of my @Hedgeye Risk Range anywhere > 12,003
  2. NASDAQ ramped with RISING Volatility yesterday (#NazVol closed > 31 TREND support at 33.44)
  3. Implied Volatility for QQQ is trading at a -12% DISCOUNT to 30-day realized this morning

Don’t get the math on that? I do. It’s the same observation I made at the NASDAQ’s all-time high back in AUG (and registering the AAPL oversold signal at $105). All-time bubble highs don’t have visceral impact on my emotional state. It’s just fractal geometry.

While speculative options activity exploded volumetrically yesterday, Total US Equity Volume #DECELERATED -15% vs. its 1-month average. Again, if you’re not just staring at the surface area of markets (Moving Monkeys of PRICE), you saw that.

From a fractal dimension perspective, what I see when I see #Quad4 risk rising is clearly not what CNBC sees. Does that mean I’m 100% right? Obviously not. But when I am right, I am right for the right reasons. And consensus gets smoked.

Could consensus get crushed (again) chasing the NASDAQ up here? A: Yes. Why?

  1. The US Dollar is up this morning after signaling a series of higher-lows post #Quad3 being priced in during Q3
  2. EUR/USD failed at the top-end of my $1.16-1.18 Risk Range (again) with the Italians issuing 0.00% 3yr notes
  3. GBP/USD failed at the top-end of my $1.28-1.30 Risk Range (again) too
  4. Germany’s economy remains in #Quad4 in Q4 (bearish for the Euro)
  5. Germany’s 10yr Bund yield is down, again, this morning to -0.56% and signaling lower-lows
  6. Commodities (CRB) Index just made another lower-high vs. its #Quad3 in Q3 highs
  7. Oil (WTI) was down over -3% at one point yesterday and remains a new Bearish TREND @Hedgeye  
  8. Silver (new short position) is -0.4% this morning with USD up (high inverse correlation)
  9. Copper is -0.5% this morning and also making a series of lower-highs vs. its #Quad3 in Q3 highs
  10. Gold is signaling a big lower-high of $1938/oz (it much prefers Down Dollar #Quad3 vs. Up Dollar #Quad4)

Nope, I didn’t mention a bloody word about a stock idea or Old Wall media narrative in those 10 reasons, did I? Just to list other Wall Street talking points on why it’s definitely NOT #Quad4 yesterday (i.e. chase Tech here):

  1. “Boost from the momentum/growth trade due to underperforming value recently”
  2. “Earnings to beat expectations”
  3. “Big Blue Wave Stimulus package pending”
  4. “Falling expectations of a contested election”
  5. “Vaccine optimism”
  6. “Dollar weakness”

Again, not to nit-pick at narratives, but A) there wasn’t 1 number in those 6 talking points and B) that’s a diametrically different way to consider risk than how I measure and map it.

It’s not called Hedgeye Asset Management Storytelling, for a reason.

Even if your process is to disprove talking points (that’s not my process, although I do spend a LOT of time replying to Institutional clients on some of these points), let’s go in reverse:

  1. Read JNJ’s Vaccine trial risk this AM
  2. Dollar strength this AM from a particularly important level vs. Euro
  3. “contested election” isn’t changing my growth/inflation numbers
  4. Blue Wave was the name of the hedge fund my bosses blew up at Carlyle in 2007
  5. Earnings #slowing at plenty of my favorite European and US Financials Shorts
  6. Growth vs. Value? So not what we do. We do Fractal Signals and The Quads

One ROC (rate of change) narrative I’d believe (because my signal believes it) is that a company like Amazon (AMZN) is going to beat expectations. I know, pay me 2 & 20 for that contrarian idea. Ha

If you want some real forward looking and #process provoking Global Macro risk management conversations, tune into our annual Hedgeye Investing Summit LIVE @HedgeyeTV today at 11AM EDT.

Immediate-term @Hedgeye Risk Range with TREND signal in brackets: 

UST 10yr Yield 0.62-0.83% (bearish)
UST 2yr Yield 0.11-0.16% (bearish)
SPX 3 (neutral)
NASDAQ 10,902-12,003 (bearish)
REITS (XLRE) 35.13-37.66 (bullish)
Utilities (XLU) 59.00-64.91 (bullish)
Financials (XLF) 23.23-25.80 (bearish)
Shanghai Comp 3175-3372 (bullish)
VIX 24.09-30.72 (bullish)
USD 92.89-94.45 (neutral)
EUR/USD 1.16-1.18 (neutral)
GBP/USD 1.28-1.30 (neutral)
Oil (WTI) 37.11-41.99 (bearish)
Gold 1 (bullish)
Silver 23.04-25.50 (bearish)
AAPL 110-126 (neutral)
AMZN 3174-3511 (bullish)

Best of luck out there today,


Keith R. McCullough
Chief Executive Officer

Why Are Stocks Higher? - CoD Eur Yields