A #Quad4 Week, It Was

“Their skills were admired and feared by the rest of the trading profession.”
- Maury Klein 

On this day (November 2^nd) of 2007, I was fired by Carlyle for being too bearish. Pre Rainbow’s End (The Crash of 1929), they called crazy people like me who short markets “professional speculators.”

Remember Jesse Livermore? “JL, as his friends called him, began to see patterns in market fluctuations and anticipated their movements.” But why did stocks get hammered last week? Why are they “up” in the pre-market this morning? Is it #Quad4 or #Quad3?

“I didn’t ask the tape why when I was fourteen… and I don’t ask it today at forty.” -JL (pg 63)

Back to the Global Macro Grind…

Welcome to another epic Macro Monday @Hedgeye! As a matter of risk management #process, on the 1^st day of every week we measure and map last week’s Global Macro market moves within the context of TRADEs, TRENDs, and TAIL risks.

Let’s start with the Global Currency market that just had another #Quad4 (Dollar Up) week:

1. US Dollar Index had a big +1.4% up week, moving back to Bullish TRADE, but remaining Bearish @Hedgeye TREND
2. EUR/USD had a big -1.8% down week, moving back to Bearish TRADE, but remaining Bullish @Hedgeye TREND
3. Japanese Yen was up another +0.1% vs. USD and remains Bullish on both TRADE and TREND durations
4. GBP/USD corrected -0.7% last week but remains Bullish TRADE and TREND
5. Turkish Lira collapsed another -4.6% vs. USD last week to -7.5% in the last month and remains Bearish TREND
6. CHF/USD corrected -1.4% last week but is still +0.4% in the last month and remains Bullish @Hedgeye TREND

If you’re actively Risk Managing (i.e. trading) all of Global Macro, both ways, like I am, you take advantage of Counter @Hedgeye TREND moves like we had last week in USD and A) re-shorted US Dollars (UUP) outright and B) Bought Swiss Francs (CHF/USD) on sale.

You also took advantage of a Sale on Gold, which was down -1.2% last week (in rising Dollars), after waiting, patiently, for an immediate-term TRADE #oversold signal within Gold’s longstanding Bullish @Hedgeye TREND.

Ex your friend Captain Stock Picker, lighting his hair on fire at VIX 40, what else did you notice on USD Dollar Up week? Commodity Deflation wasn’t as broad based as you might have thought it would be, eh?

1. CRB Commodities Index deflated (#Quad4 week) -4.0% last week with Oil being the biggest weight on why
2. Oil (WTI) deflated -10.2% last week after failing to hold Bullish @Hedgeye TRADE support
3. Copper corrected -2.6% last week but remains Bullish on both TRADE and TREND durations (+0.5% in the last month)
4. Natural Gas inflated another 5.0% last week to +7.6% in the last month and remains Bullish TRADE and TREND
5. Lumber reflated +6.2% last week and remains Bullish @Hedgeye TREND as well
6. Aluminum inflated another +0.9% last week to +5.8% in the last month and remains Bullish TRADE and TREND

Yes, your other friends who may have bought Oil and “Energy Stocks” for the “Blue Wave” learned a great trading rule last week too – a “long-term investor is a trader who is under water.”

Oh, don’t worry, I won’t enrage my former Ivy League classmates with my caveman “trader” speak. ‘How dare KM not see that “valuation” is at the center of the universe???’ Let’s get back to The Quads and their impact on the beloved US Equity Bubble:

1. Tech Stocks (XLK) down -6.4% last week
2. Industrials (XLI) down -6.5% last week
3. Consumer Discretionary (XLY) down -6.5% last week

Oh, the symmetry of it all (sounding smarter now Mucker). Like I said, with front-month US Equity Market Volatility (VIX) +38% on the week and in the wrong-you-know-what-bucket (keep it classy KM), everyone’s stock picks felt shame.

And, no, unless you were actively (and aggressively) trading it like I was, there was nowhere to hide on that VIX ramp > 31 towards 40. Utilities (XLU) were the “best performing” Sector Style at -3.7% on the week. That’s the only Sector UP for Q4-to-date at +5.1%.

Who was Long Utilities (XLU)  and short Tesla (TSLA) at down -7.7% last week? That worked.

So did Long China, on a relative basis. Chinese Stocks (A-Shares) corrected -1.6% last week and are actually UP +0.2% in the last month vs. something like German Stocks which got crushed -8.6% last week to down -9.4% in the last month.

Put simply for the non-“trader “sophisticates: #Quad1 Long China vs. #Quad4 Short Germany = #Alpha.

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

UST 10yr Yield 0.73-0.89% (bearish)
SPX 3 (bearish)
RUT 1 (bearish)
Tech (XLK) 109.33-116.90 (bearish)
Utilities (XLU) 62.01-65.54 (bullish)
Shanghai Comp 3 (bullish)
DAX 119 (bearish)
VIX 28.47-42.89 (bullish)
USD 92.20-94.15 (bearish)
Oil (WTI) 34.89-39.43 (bearish)
Nat Gas 2.82-3.48 (bullish)
Gold 1 (bullish)
Copper 3.01-3.21 (bullish)
MSFT 198-211 (bearish)
TSLA 380-437 (neutral) 

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer