“They provided the tools needed to model motion and change.”
- Steven Strogatz
That’s what Strogatz wrote about the functions of functions in one of my favorite Math #History books, Infinite Powers.
Whether it’s the Vol of Vol, The Pods, or The Quads, it’s not about the numbers themselves. It’s about the “relationship between numbers”… and, directionally, “things can change in 1 of 3 ways”…
“They can go up, they can go down, or they can go up and down. In other words, they can grow, decay, or fluctuate” (pg 125). When they fluctuate, they can be capitalized on. Buy on red and sell on green in Global #Quad2, eh.
Back to the Global Macro Grind…
After 5 all-time closing highs for SPY already in the month of April 2021, welcome to a beautiful #Quad2 in Q2 Macro Monday @Hedgeye. No matter what you thought the US stock market would do post those March 2021 corrections, that’s what it just did.
As a matter of process, on the first day of every week we measure and map all of the Global Macro market moves that mattered in the week prior. We use weekly moves to contextualize @Hedgeye TRADEs, TRENDs, and TAILs.
As usual, we like to start with the Global Currency market:
- US Dollar Index resumed its Bearish @Hedgeye TREND with a -0.9% decline last week
- EUR/USD popped +1.2% right off @Hedgeye TREND support last week and remains Bullish TREND
- Japanese Yen bounced +1.0% off its immediate-term TRADE Oversold Signal and remains Bearish TREND vs. USD
- GBP/USD corrected -0.6% last week but remains Bullish @Hedgeye TREND with the UK In #Quad2
- Canadian Dollar was up another +0.4% vs. USD last week and remains Bullish @Hedgeye TREND as well
- South Korean Won appreciated +0.8% vs. USD last week and also remains Bullish TREND with SK in #Quad2
While I can count, it’s getting hard to count how many times tourists have told me the “US Dollar is breaking out” since my Signal went Bearish @Hedgeye TREND on it back in June 2020.
As a reminder, the only Quad where the US Dollar Index has a positive expected value is in #Quad4.
On the other side of US Dollar weakness was more specific Commodity inflation (ex-Oil, which corrected last week):
- Copper inflated another +1.2% last week to +9.8% in the last 3 months = Bullish TREND @Hedgeye
- Corn inflated another +3.1% last week to +16.0% in the last 3 months = Bullish TREND @Hedgeye
- Lumber inflated another +11.2% last week to +82.7% in the last 3 months = Bullish TREND @Hedgeye
No, that’s not a Lumber typo. And, yes, if you’re a Fed Fan club member you can just call that “transitory”, fully loaded with 4.9 MILLION 30yr olds in America entering the 1st time home buyer market…
Or, you can be less theoretical… and just own #InflationAccelerating, and make money on it.
If you don’t want to be long of inflation, short these two things and let me know how that goes for the next month or two:
A) Energy Stocks (XLE) corrected -4.2% last week to +16.3% in the last 3 months
B) UST 10yr Treasury Bonds corrected -6 basis points last week to +54 basis points in the last 3 months
Selfishly, I’ll be buying-more Energy on sale and shorting-more TLT.
Imagine you shorted Tech (XLK) on the narrative that #Quad2 Rates Rising is “bad for growth stocks?” #Ouchy. Tech Stocks (XLK) were up +4.6% last week and remain Bullish TREND @Hedgeye alongside Financials, Industrials, Basic Materials, Energy, etc.
Reiterating that you buy both growth and value (when they’re on sale) in #Quad2, eh.
The only major Global Equity market we don’t like is still China. That’s because China is in #Quad3. The Shanghai Composite Index was down another -1.0% last week (vs. SPY +2.7%) to -3.3% in the last 3 months and remains Bearish TREND @Hedgeye.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.63-1.78% (bullish)
SPX 4022-4172 (bullish)
RUT 2173-2304 (bullish)
NASDAQ 13,122-14,152 (bullish)
Tech (XLK) 134.20-143.89 (bullish)
Energy (XLE) 47.87-51.38 (bullish)
Financials (XLF) 33.94-35.68 (bullish)
Shanghai Comp 3 (bearish)
DAX 148 (bullish)
VIX 15.07-20.15 (bearish)
USD 91.69-93.18 (bearish)
EUR/USD 1.169-1.196 (bullish)
USD/YEN 109.09-110.94 (bullish)
GBP/USD 1.365-1.391 (bullish)
CAD/USD 0.79-0.80 (bullish)
Oil (WTI) 58.01-62.87 (bullish)
Gold 1 (bearish)
Copper 3.94-4.17 (bullish)
Silver 24.01-25.77 (bearish)
Bitcoin 55,858-61,903 (bullish)
Best of luck out there this week,
KM
Keith R. McCullough
Chief Executive Officer
