“Some narrative constellations may, at their peak, infect only a small fraction of the population.”
- Robert Shiller
If there is an economic Similar Set of Quad conditions where anything can go higher than the human mind can imagine, it’s #Quad2. Short squeezes and all-time closing SPY highs are fractal, baby!
As Shiller argues in Narrative Economics, “in addition to a constellation of narratives, there is a confluence of narratives that may help drive economic and market events…”
“Narratives appear in constellations partly because their credibility relies on a set of other narratives that are currently extant” (pg 28). Extant means surviving, like the current economic #accelerations in both Global GROWTH and INFLATION are.
Back to the Global Macro Grind…
Constellations & Confluences of Narratives… have you thought about your risk management #process that way? Especially if you run a hedge fund or hedged PA, I highly encourage you to consider it. Stock picking will only get you so far.
Having data-driven Macro Awareness of the interconnectedness of it all – that’s the fractal stuff of Full Cycle Investors!
For those of you who have traded through a serious amount of OODA loops, yesterday’s intraday move in all of Global Macro was one to capitalize on. Total US Equity Volume ramped +60% vs. its 1-month average! No, that’s not a typo.
That’s what we dirty little Irish Mucker hedge fund types call a puke. In order to not be the one puking, you need A) experience and B) to make the right super-short-term decisions in a tight window of time.
#OODA = Observe, Orient, Decide, and Act!
I’m using an oversupply of exclamation marks this morning because it was that kind of a macro moment where you either were or were not aware. Being the uninformed volume in market-time like that is not good!
For me it was especially important because it was the only day in 2021 that I came into The Game running net SHORT.
Why did I move to net SHORT last Thursday? You already know. The bloody title of my Early Look was “Sell Signals.” And, yes, there was a minor US Equity market correction on Friday, but the real cross asset class correction came around 11AM yesterday:
- US Equity Beta – SP500 made its LOD (low of the day) at 11:06AM ET at 3805
- European Equities – got smoked into the European close
- US Dollar ramped to its high of the day at 11:09 AM ET
- UST 10yr Yield sold off to its LOD in conjunction with all of this too
- US Equity Volatility (VIX) shot to 26 by 11:06AM ET as well
There are OODA loops to risk manage, then there are those – that one was epic.
If you knew A) it was #Quad2 and B) these macro moves were probably episodic and non-TRENDING because C) they were driven by a constellation of hedge funds buying (protection) and selling (down gross exposure), you made money in that tight loop.
If you didn’t… well, you didn’t. And you should re-evaluate your decision making #process in that critical window of time.
Did you have to know who or why? Nope. When it started, you just needed to realize it was Game On, reading and reacting to the situation. When it started, I was on a call with a hedge fund client and the dialogue went something like this:
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KM: what just moved the market? |
And, that was it. We went from having a pleasant conversation about something to no conversation, quick back and forths, and off the phone. That’s when I went from net SHORT back to net LONG in both my PA and in Real-Time Alerts.
The Game has very few episodic and non-TRENDING moments like that. “Longer-term” types who don’t trade (i.e. actively risk manage) like I do are probably like “whatever, SPY closed at another all-time high by the close.” Yep, that’s the point:
- US Equity Beta – SP500 ramped +2.8% off that LOD to close at an all-time high of 1855
- European Equities – put in a big higher-low yesterday and the DAX opened up +1.5% this morning
- US Dollar came off its highs and is, once again, signaling lower-Cycle-highs within its Bearish TREND
- UST 10yr Yield bounced off the low-end of my @Hedgeye Risk Range with immediate-term upside to 1.17%
- US Equity Volatility (VIX) dropped, like a rock, from 26 to 23 … and the rest is market history
I get it. A lot of people will say that doesn’t matter and they can’t time markets. Believe them, they can’t. And believe me, I won’t always get it right like this either.
But instead of whining all day long about what’s “wrong with this market”…
Consider the constellation of alternative attitudes and return outcomes (SPY intraday move was greater than its 2021 YTD return!). Getting it right mattered more than a narrative affecting only a fraction of the market population.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.03-1.17% (bullish)
SPX 3 (bullish)
RUT 2113-2182 (bullish)
NASDAQ 12,996-13,763 (bullish)
Tech (XLK) 129.08-135.15 (bullish)
Energy (XLE) 40.81-44.97 (bullish)
Financials (XLF) 29.88-31.79 (bullish)
DAX 130 (bullish)
VIX 20.63-24.69 (bearish)
USD 89.74-90.75 (bearish)
Oil (WTI) 51.97-53.94 (bullish)
Gold 1 (bearish)
Bitcoin 30,063-39,561 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
