“The good news is that most people’s reflective skills naturally improve over time.”
- David Robson
Do you sell at the top-ends of the @Hedgeye Risk Ranges? Do you buy at the low-ends? When you do either, you’re often doing so counter to both that day’s direction (of price) and your feelings.
“Some researchers call these skills emotional intelligence... regulation is the final cog in our emotional compass, and, together, those three interconnected components – interoception, differentiation, and regulation – can powerfully direct the quality of our intuition and decision making.” -The Intelligence Trap, pg 125
No, not everyone thinks this way. And yes, sometimes I write things like “#Overbought, Finally!”, using hashtags and exclamation marks in EL Titles to trigger your feelings. If I can’t help you fade your feelings, I’m not being a good coach.
Back to the Global Macro Grind…
Welcome to a fun Macro Monday @Hedgeye after Thursday/Friday signaled A) a US Dollar that was immediate-term TRADE #oversold, B) Commodities and Equities #overbought, and C) Long-term Interest Rates #overbought!
So many hashtags because I have so little time to write this in the morning! But let’s get into contextualizing why getting The US Dollar right helps you get most big things in Global Macro right:
- US Dollar Index crashed to an immediate-term #oversold sold Cycle Low last week (down -2.5% in the last month)
- EUR/USD was up another +1.2% last week (+3.4% in the last month) signaling immediate-term TRADE #overbought
- Yen was +0.7% vs. USD last week and remains Bullish TRADE and TREND @Hedgeye
- GBP/USD ramped +2.3% last week also signaling immediate-term TRADE #overbought within its Bullish TREND
- Canadian Dollar was 1st in with a stealth -0.1% correction last week after being +2.3% in the last month
- Sri Lankan Rupee was down another -0.6% vs. USD last week to -1.6% in the last month
Yeah, if you’re measuring and mapping all of Global FX, every weekend, for the last 14 years, you know you’re getting towards the end of a big FX move when Sri Lanka’s currency can’t go up anymore vs. America’s devalued Dollar!
In conjunction with a new Cycle Low for USD, Full Cycle Investors realized a new Cycle High return in Commodities last week:
- CRB Commodities Index inflated another +3.2% to 166, signaling immediate-term TRADE #overbought
- Oil (WTI) inflated another +5.4% to $49.10/barrel, signaling immediate-term TRADE #overbought
- Copper inflated +3.0% to another new Cycle High of $3.63/lb., signaling immediate-term TRADE #overbought
I could go on and on about why A) Shorting US Dollars and B) Buying Commodities and C) Buying Emerging Markets back in June of 2020 made Full Cycle Investing sense, but I’m pretty sure you all get the drill. That’s all hindsight now.
With both Lumber prices and Bitcoin (two Commodities with white hot inverse correlations) inflating > +28% in the last month alone, even CNBC people started to figure out that the Dollar was collapsing!
Other ways to think about a short-term peak in #Quad2 Cycle Expectations last week were:
A) Tech (XLK) re-emerging as the Top US Equity Sector Style, +3.2% on the week
B) Yield Curve steepening to a new Cycle High of +83 basis points wide on 10s/2s
The Yield Curve had steepened +13 basis points in the last month alone. Most of that came on the long-end of the curve where the UST 10yr Yield ramped to 0.96% with the top-end of my Risk Range being 0.97%, for now.
Commensurate with that move in bond yields was a healthy Full Cycle Return developing on both the short side of the Long Bond (TLT) and the most Rate Sensitive US Equity Sector Style: Utilities (XLU), which are down -2.9% in the last month.
Gold Bugs don’t like that, fully loaded with Gold’s Counter @Hedgeye TREND bounce last week, it’s still down -3.6% in the last 3 months. Don’t forget that Gold’s Full Cycle Peak was during #Quad3 in Q3 of 2020.
And now it’s onto the next… from what were Overbought #Quad2 Cycle Highs… to wherever the next oversold signals appear. Emotionless and differentiated our risk management process will be.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.87-0.97% (bullish)
SPX 3 (bullish)
RUT 1 (bullish)
NASDAQ 12,260-12,855 (bullish)
Tech (XLK) 123.88-129.50 (bullish)
Energy (XLE) 38.01-41.65 (bullish)
Financials (XLF) 27.90-29.02 (bullish)
Utilities (XLU) 61.55-63.24 (bearish)
Gold Miners (GDX) 33.98-37.48 (bearish)
VIX 20.20-26.51 (bearish)
USD 89.56-91.42 (bearish)
EUR/USD 1.204-1.228 (bullish)
USD/YEN 102.92-104.19 (bearish)
GBP/USD 1.320-1.361 (bullish)
CAD/USD 0.77-0.79 (bullish)
Oil (WTI) 45.10-49.57 (bullish)
Gold 1 (bearish)
Copper 3.46-3.65 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
