“What can I find out that will make my guess more educated?”
- Annie Duke
While I certainly hope you weren’t guessing at yesterday’s intraday US stock market lows, reality is that there was a LOT more Uninformed Volume out there, puking, right where they shouldn’t have.
While it may offend some of them (I’d never do such a thing!), there are a LOT of new players in The Game that have A) belief-systems about how The Game is played that are B) uneducated and uninformed on the math in particular moments like that.
As Annie goes on to remind us in How To Decide: “Your chief weapon to improve your decisions is turning some of the stuff you don’t know into stuff you know.” Start with having multi-factor, multi-duration market signals that make you Macro Aware.
Back to the Global Macro Grind…
Belief-systems? You mean Gold Bugs, Maxis, and Mob guys don’t start every tweet, Redditt post, or market decision with their feelings? Haha. For this Ole Mucker, The Game has never been more fun!
“Your beliefs are part of the foundation of every decision you make. Your beliefs inform how likely you think things are to occur or things are to be true. They inform what you think the payoffs are, and even inform your goals and values.” -Annie Duke (pg 93)
So, what if what you believe A) isn’t true and/or B) doesn’t pay out as truth in the moment that matters anyway?
In my #timestamped world, truth isn’t just the last price. It’s the volatility of the price.
The advantages of using a data-driven approach to risk managing both your “feelings” and Full Investing Cycle portfolio are manifest. I challenge you to apply all the stuff you think you know about (AI, Science, etc.) to your decision making #process.
Why did I buy the damn dip in #Quad2 portfolio exposures that were for sale yesterday?
A) The volatility spike was episodic-and-non-TRENDING
B) Volume was #decelerating during the decline towards the low-end of my Risk Ranges and …
C) Implied volatility was pricing in another bout of EOD (end of world)
What was the math on that?
A) Front-month US Equity Volatility (VIX) didn’t even take a sniff at @Hedgeye TREND Signal resistance of 29.11
B) Total US Equity Volume was down -21% day-over-day and -26% vs. its 1-month average
C) Implied volatility PREMIUMs on what I really like ramped to +42% on IWM (Small Caps) vs. 30-day realized
What “I really like” has zero to do with an opinion like “valuation”, btw. It has everything to do with what The Machine likes based on A) my Signals and B) the economic Quad perpetuating those Signals.
Top down, what I really like, wasn’t for sale for long yesterday anyway!
A) SMALL CAP, as a Factor Exposure, was +0.6% on the day taking its 1-month return to +4.4%
B) HIGH BETA, as a Factor Exposure, was +0.7% on the day taking its 1-month return to +9.0%
C) Energy Stocks (XLE), as a Sector Style, were up another +1.7% on the day to +23.5% for FEB alone!
Interestingly, what I don’t like is still widely held (and for sale):
A) LARGE CAP, as a Factor Exposure, was +0.1% on the day taking its 1-month return to +2.0%
B) LOW BETA, as a Factor Exposure, was -0.2% on the day taking its 1-month return to +1.6%
C) Consumer Discretionary (XLY), as a Sector Style, was -0.7% on the day to +1.8% for FEB to-date
Ok, here’s some stuff that even the most uninformed player in The Game probably knows – what’s Large Cap, Low Short Interest, and the #1 weight in the Consumer Discretionary (XLY) ETF? A: Amazon (AMZN).
Never mind the empirical fact that you shouldn’t own that based on Factor Exposures alone right now (we much prefer being long “Low Quality”, High Short Interest US Retailers)…
Should you get paid 2 & 20 to own AMZN going into the toughest COVID compares in the history of compares?
Here’s another question that maybe only the Macro & Factor Aware Crowd (yes, #HedgeyeNation, that is you!) may be able to answer on the spot: can Momentum, as a Factor Exposure, be LOW BETA?
A: Yes!
To my quantified Hedgeyes, yesterday’s episodic-and-non-TRENDING US Equity market freak-out was more about certain types of Managers being offsides (ARKK saw $465M in withdrawls, for example) on certain Factor Exposures than anything else.
Looking across asset classes, 2-3 hours of panic selling in those exposures had nothing to do with The Cycle. The Commodities market, for example, made a new Cycle High at 192 on the CRB Index on the day.
Instead of buying what Crowded Momentum portfolios had to sell, why not take the path less travelled and buy The Container Store (TCS), Sunopta (STKL), and Qualtrics (XM)? That’s what those following my decision making process did.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.19-1.44% (bullish)
SPX 3 (bullish)
RUT 2 (bullish)
NASDAQ 13,438-14,296 (bullish)
Energy (XLE) 45.06-48.96 (bullish)
Financials (XLF) 31.10-33.48 (bullish)
DAX 139 (bullish)
VIX 18.95-24.35 (bearish)
USD 89.82-90.90 (bearish)
Oil (WTI) 57.89-62.68 (bullish)
Gold 1 (bearish)
Copper 3.90-4.24 (bullish)
Silver 26.65-28.09 (bullish)
AAPL 123-132 (neutral)
AMZN 3131-3347 (neutral)
TSLA 687-802 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
