Quarantine & Consolidate

“Quarantine others from your opinions and beliefs when asking for feedback.”
- Annie Duke

Is that how you roll? Many don’t. As opposed to what the market is doing, they tell everyone what their fav pet stocks should be doing. The most dispassionate and objective feedback I get is from The Machine, or the market, itself.

Today is going to be a great day because I get to have a Real Conversation with the author of both the aforementioned quote and How To Decide, Annie Duke, LIVE @HedgeyeTV at 1PM ET.

She’ll explain how “resulting” and anchoring on short-term outcomes “can infect the quality of feedback”… and explain #behavioral concepts like the Halo Effect where “opinions from high-status members of a group are especially contagious.”

Back to the Global Macro Grind…

One of my fav parts of my Global Macro & Risk Management framework is that it has an embedded disrespect for the “high-status” of ye Olde Wall. This Irishman loves living beyond The Pale of the establishment’s received wisdoms.

I don’t love it for the sake of being loathed. I love it because I make money fading crowds. Quarantining Bloomberg headlines and CNBC talking points is essential for a data-driven, Full Investing Cycle #process.

So how about we quarantine consensus fears about the US stock market this year and focus on my Consolidation Signals?

First, let’s remind ourselves of the short-term, episodic-and-non-TRENDING, US Equity market outcomes that should have been bought so far during #Quad2 in Q1 and Q2 of 2021:

1. JAN 2021 – the high-status hedgie squeeze of consensus High Short Interest stocks
2. FEB 2021 – the epic correction in consensus, Low Short Interest, Mega Cap stocks
3. MAR 2021 – the tall tales about how breakouts in interest rates are “bad for Tech and Housing”

Obviously there were quick -10% corrections in both SMALL CAP (Russell 2000) and LARGE CAP (NASDAQ) Factor Exposures in March as well… corrections like those are either:

A) The beginning of the end (i.e. a Phase Transition to a new economic Quad)… or
B) Corrections from the top-end of my Risk Ranges that morph into Consolidation Signals

Since cable TV consensus doesn’t even know what The Quads are, I’m pretty sure that they have no idea what we Irish boys and girls are doing beyond The Pale of their backslapping narratives.

If you’re not Irish, please don’t cancel.

So now its APR of 2021 and everything from HIGH to LOW SHORT INTEREST and SMALL to LARGE CAP… and HIGH to LOW BETA… are working higher, all at the same time… and, in astonishment, the consensus bears are way behind their bench.

The bench = the benchmark market return that many have to beat in order to get paid (i.e. SPX +8.5% YTD).

I personally don’t have a bench. If I did, I’d be lucky to bench ½ of what I benched in 1999. And, yes, that makes me different. And, yes, that’s ok. Because I can chirp on Twitter all day long and write you these rants.

If I was my former big time self, running my hedge fund, I’m pretty sure my 2021 YTD performance would suck. That’s because the last time I ran a hedge fund book was 2007, when being Factor Aware didn’t matter like it does today.

Most of my chirping isn’t about you and your performance problems. It’s about me learning from all my prior problems.

Oh, and I’ll have plenty of performance problems for many years to come. This year just isn’t the year my loathers were hoping for, yet. Hope is not a risk management process.

Our risk management process measures and maps the Vol of Vol of market prices systematically.

Here are this morning’ Top 10 Consolidation Signals:

1. SP500’s Risk Range continues to narrow (i.e. consolidate) as SPX Volatility (VIX) continues to breakdown
2. NASDAQ’s Risk Range continues to narrow (consolidate) as #NazVol (VXN) continues to breakdown
3. UST 10yr Yield’s Risk Range continues to consolidate (+19bps wide) with higher-Cycle-highs in play
4. Oil (WTI) continues to consolidate a series of higher-lows as Oil Volatility (OVX) continues to breakdown
5. Energy Stocks (XLE) continue to consolidate their +30% YTD gain with a narrowing Risk Range
6. EUR/USD’s Risk Range continues to consolidate after its recent correction and remains Bullish TREND
7. GBP/USD’s Risk Range continues to consolidate after its recent correction and also remains Bullish TREND
8. Bitcoin’s Risk Range is both narrowing and signaling higher-highs towards 62,115
9. Dr. KOSPI has consolidated its recent correction and is now signaling Bullish TRADE and TREND again
10. DAX, FTSE, and Italy’s MIB Index aren’t even correcting, yet, so no news on Consolidation Signals there

Again, take all of that market feedback however you’d like to. In a world full of people who lie and cheat to further their “high-status” economically and politically, I trust the secret to the universe – the calculus of it all is how I decide.

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

UST 10yr Yield 1.60-1.79% (bullish)
SPX 3 (bullish)
RUT 2125-2299 (bullish)
NASDAQ 13,058-13,828 (bullish)
Tech (XLK) 131.56-139.51 (bullish)
Energy (XLE) 48.02-51.55 (bullish)
VIX 16.58-20.93 (bearish)
EUR/USD 1.169-1.196 (bullish)
GBP/USD 1.371-1.393 (bullish)
Oil (WTI) 57.90-63.47 (bullish)
Gold 1 (bearish)
Bitcoin 54,224-62,115 (bullish)

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer