“Your songs could not be sung, your music not played, your Celtic crosses not displayed.”
- Timothy Egan
And consensus hedgies thought being short SPY into yesterday’s all-time high sucked…
As Egan reminds us in The Immortal Irishman, living under the bootheel of either the Brits (back then) or The Bulls now isn’t fun. “For the better part of seven centuries, to be Irish in Ireland was to live in a land not your own.”
Oh and this Irish Canadian and his American family has lived plenty a day and night as a short seller in a land of raging bulls. Believe me that’s no fun either. What’s best about this leg higher is that it is in the face of Snarling Bears.
Back to the Global Macro Grind…
As you can see in our Q2 Macro Themes deck, the Celtic Trinity of my Full Investing Cycle process has 3 main parts:
- Math
- History
- Behavioral Psychology
Since Day 1 of founding this Independent Research firm (and now native media/content platform), I’ve taught every employee and eventual Partner about a fractal pattern called a Sierpinski Triangle.
Math, History, and #Behavorial are the 3 main components of the triangle.
If you’re not Irish, please don’t cancel (Waclaw Sierpinski was a Polish mathematician that a Frenchman, Mandelbrot, loved). The Trinity Knot symbolizes the 3 Life Cycle of a woman relative to the Phase Transitions of the moon.
Yep, from gravity and the market gods to fractal geometry, that’s deep.
And if someone out there wants to copy that part of what I do, I say “wherever you go… and whatever you do, may the good luck of the Irish be with you!” haha
Sure, you can all do MATH. There’s no secret in the secret to the universe (calculus). The trade secrets of Hedgeye are all about how you combine the learnings of long-term HISTORY (for starters, read a new book every 10 days)…
Within the context of the intermediate-term Cycle and understand how to Signal and risk manage all of it using #BEHAVIORAL data as your backboard.
Short Covering is a behavioral reality that you want to front-run.
First, here was The Setup to The Signal:
A) Both the USA and G20 at large were entering Global #Quad2 in Q2… and
B) Consensus came into Q2 running NET SHORT US Equities, across the major indices
You can see that by measuring and mapping The ROC (rate of change) of Net Positioning via futures & options contracts:
A) As of last week, there was a net SHORT position in the SP500 of -44,528 contracts
B) There were also net SHORT positions of -9,997 and -17,381 in the Russell and the NASDAQ
To put that consensus reality in context:
A) MAX Bullish position for the SP500 in the last 3 years = +245,514 net LONG contracts
B) MAX Bullish position for the Russell and NASDAQ (3yr look-back) = +72,749 and +47,085 contracts
So, when ye Olde Wall and its touristy media channels tell you “everyone is bullish” (and the market is a bubble, or expensive or whatever), that’s what this Irishman calls BS.
Another way to think about consensus positioning and what’s morphed over the centuries from the 3 Life Cycles of a woman into The Father, The Son, and the Holy Spirit are my “3 Buckets of Volatility”…
Yeah, to the person who sounded verbatim similar to me on consensus TV yesterday, good luck making that up as your own too. Especially the 3rd bucket, because I have a naughty name for that one that you can only say on HedgeyeTV!
Right on Cycle Time (i.e. during #Quad2 in Q2), broad US Equity Volatility (VIX) just dove into the most investable bucket of the 3 buckets – the 9-21 Vol of Vol Bucket. That’s where stock picking stars are born. It’s also where bears get killed.
The best part about this bucket is that it perpetuates constant Short Covering. That’s mainly because Phase Transitioning from The Chop Bucket (21-29 VIX) to The Bull’s Bucket often creates shallow corrections within my Consolidation Signals.
So, today, with the low-end of my Vol of Vol Risk Range for the VIX flashing a 15-handle, that has these Irish eyes smiling. It is, of course, not an accident that the last 7 moves I made in Real-Time Alerts were Covers on prior Short Sale Signals.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.62-1.79% (bullish)
UST 2yr Yield 0.13-0.18% (bullish)
SPX 4001-4126 (bullish)
RUT 2162-2294 (bullish)
NASDAQ 13,065-13,934 (bullish)
Tech (XLK) 132.77-140.98 (bullish)
VIX 15.97-20.58 (bearish)
USD 91.76-93.35 (bearish)
Oil (WTI) 57.83-63.20 (bullish)
Gold 1 (bearish)
Copper 3.94-4.17 (bullish)
MSFT 239-255 (bullish)
FB 294-321 (bullish)
Bitcoin 54,399-62,178 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
