“Intelligent and educated people are less likely to learn from their mistakes.”
- David Robson
That quote will probably trigger some people. It should. It’s from another solid #behavioral book I’m in the midst of reviewing called The Intelligence Trap – Why Smart People Make Dumb Mistakes.
“Like most people, I once believed that intelligence was synonymous with good thinking…”
“But, as I began working as a science journalist, specializing in psychology and neuroscience, I realized the latest research was revealing serious problems with these assumptions… For individuals, these errors can influence our health, well-being, and professional success.” -David Robson
Back to the Global Macro Grind…
For a long time I’ve believed that not being as PhD smart as many people on Wall Street is one of my competitive advantages. Economic cycles don’t cycle the way they do in textbooks. Markets don’t trade on brilliant “valuation” assumptions either.
Since we already use objective, data-driven, and stochastic ROC (rate of change) models, I’m comfortable being uncomfortable about not having to “know” what the next answer to the alpha-test is…
That leaves my main challenge the same one that you all have – to be able to repeatedly fade my “feelings.”
Let’s take a live example like yesterday’s US stock market “correction” (or down day from the prior all-time high day) to work with our amygdala’s impact on our thinking for a bit:
A) Stocks (SPY, NASDAQ, Russell, etc.) opened higher, at fresh intraday all-time highs… then
B) Reversed lower, and dropped -1.2% to -2.3% intraday for SPY and QQQ respectively… and
C) Certain widely held large caps (TSLA, MSFT, NFLX, etc.) were getting pounded
What did you “feel” at the highs and lows of the day? More importantly, what did you do?
A) Did you sell on the green open?
B) Did you sell on the way down?
C) Did you sell at the lows of the day?
If you don’t mind, we’re talking about you this morning. What I did is already timestamped for all to see. Without calling Goldman for a “look” on what “people were doing” in these critical Clock Time (or trading time) moments, here’s what they did:
A) They chased the green open
B) They started selling on the way down (on #decelerating volume)
C) They bought protection at the lows of the day
How do the Macro Aware know that?
- Total US Equity Volume (including dark pool) #decelerated -18% day-over-day
- Front-month US Equity Vol (VIX) went from the low-end of my Risk Range in the AM to the top-end in the PM
- Implied Volatility on SPY went from a -12% DISCOUNT (vs. 30-day realized) to a +17% PREMIUM by the close
Again, unlike “expert” opinions on “valuation”, “sentiment”, charts, etc., these are ROC (rate of change) facts about PRICE, VOLUME, and VOLATILITY in particular moments in Trading Time where making particular buy/sell decisions mattered.
I know, in order to “feel” smarter, now they call me a “trader.” That’s fine. I’ve been called worse.
But what I really am is a Full Cycle Investor who is trying to risk manage his feelings. Selfishly, I want to buy every damn dip in my #Quad2 Longs, don’t forget. Getting The Cycle right is tough – being big in your best ideas before they go up again is tougher.
Calling me names doesn’t change their biases. I’d rather make money than sound smart and make everyone “feel” good.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.84-1.01% (bullish)
SPX 3 (bullish)
RUT 1 (bullish)
NASDAQ 12,122-12,631 (bullish)
Tech (XLK) 122.20-127.78 (bullish)
Energy (XLE) 36.35-41.74 (bullish)
Utilities (XLU) 61.75-63.99 (bearish)
Gold Miners (GDX) 33.14-37.01 (bearish)
Nikkei 268 (bullish)
VIX 19.89-23.06 (bearish)
USD 90.13-91.98 (bearish)
Oil (WTI) 44.34-46.75 (bullish)
Gold 1 (bearish)
Copper 3.39-3.57 (bullish)
GOOGL 1 (bullish)
Bitcoin 17,235-20,507 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
