“And those who were seen dancing were thought to be insane by those who could not hear the music.”
- Nietzsche
Dancing while the #Quad2 in Q2 music continues to play in May isn’t some knockoff of Chucky Prince from July of 2007. I remember that summer well. I was getting too bearish too early. The stock market didn’t peak until the end of October 2007.
If you’re publicly timestamping every move, every day, being early is called being wrong. I have been wrong plenty of times. Unlike one-way marketers of being long certain things like Gold or whatever, I have learned from my every mistake.
The aforementioned quote comes from a book that a subscriber from a Family Office recently sent me called The 5AM Club. I’m in the 4:30 AM club, but I like the title and its implied discipline. Without pre-market preparation, I’d be a lot worse at this.
Back to the Global Macro Grind…
The 4 Horseman of #Quad2 in Q2 were riding higher yesterday. For those of you who don’t watch The Macro Show, these 4 Sector Styles are what I’ve been calling my Top 4 US Equity Asset Allocations in the MFO (Mucker Family Office):
- Financials (XLF) up another +0.5% on the day to +23.6% YTD
- Industrials (XLI) up another +1.0% on the day to +16.3% YTD
- Materials (XLB) up another +1.5% on the day to +16.4% YTD
- Energy (XLE) up another +2.5% on the day to +33.9% YTD
I don’t always use “YTD” but I will today as it simplifies what’s really been working if you’ve had the discipline to buy the damn dips and not be afraid of the highest probability outcome in our process: i.e. #Quad2 melt-up.
The alternative to missing this #Quad2 move would be to be long of things like Gold (down -7% YTD) and/or long Utilities (+6.4% YTD). Both of those Asset Allocations work best together in #Quad3.
Today is not #Quad3. Today is just another day of Brownian Motion in both the FX and Rates markets where I’ll try my best to communicate that the #Quad2 in Q2 music remains #on. When it’s off, you’ll know.
How will you know? It’s my job to let you know. And it’s the market that lets me know.
Other than aspiring to become a moody middle aged man, why else would I get up at this blessed hour of the day? I hope you know that when I retire from The Game, I will not be getting up with the 5AM Club either!
Back to this morning’s math…
In addition to measuring and mapping the US Equity market from a Sector Style perspective, we do the same from a Factor Exposure perspective. It was a clean cut #Quad2 day to start May on that front yesterday too:
- LEVERAGE (High Debt/EV) was +1.0% on the day to +24.6% YTD
- HIGH BETA was up another +0.8% on the day to +26.7% YTD
- SMALL CAP was up another +0.9% on the day to +21.9% YTD
- HIGH SHORT INTEREST was up another +0.5% on the day to +19.0% YTD
Yeah, sure, you could have lost your macro marbles and SOLD your HIGH BETA Commodities Exposures in March and/or gone all Macro Tourist on yourself in April and sold your Small Caps. But you didn’t. Why? Because you love me.
Haha. No you don’t. But I do love the idea of you loving your process. Part of my coaching style is to constructively criticize you like I criticize my former self. There’s a good chance that when I finally do retire, I will study Moving Monkeys at the zoo.
Now how about this morning? Are you going to puke all of your Tech (XLK) and Semis (SMH)?
While neither of those Sector ETFs are 1 of my 4 Horsies, I got no problem ridin’ them horses to the old wall town road. From the low-end of my Risk Ranges, I’m gonna ride those ‘til I can’t ride no more.
What would stop me out from riding things that work in #Quad2? Certainly not some dude’s narrative that “rising interest rates are bad for Tech.” That horse don’t back-test across the Full Investing Cycle that is #Quad2.
*See 2013 and 2018 for details on the same
A Lil Nas X #NazVol (NASDAQ Volatility) breaking out to the upside (i.e. to Bullish TREND on my Vol of Vol Signal) would definitely dissuade me from riding those horses from the LRR’s (low end of the Risk Ranges).
That ain’t happening this morning either. “Riding on a horse, ha… you can whip your Porsche…”
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.56-1.72% (bullish)
SPX 4140-4229 (bullish)
RUT 2 (bullish)
NASDAQ 13,801-14,204 (bullish)
Tech (XLK) 138.45-144.46 (bullish)
Energy (XLE) 46.75-51.91 (bullish)
Financials (XLF) 35.22-37.01 (bullish)
Utilities (XLU) 65.29-67.45 (neutral)
VIX 15.80-18.98 (bearish)
USD 90.30-91.43 (bearish)
Oil (WTI) 62.20-65.70 (bullish)
Gold 1 (bearish)
Copper 4.26-4.62 (bullish)
AAPL 131-136 (bullish)
AMZN 3 (bullish)
FB 310-334 (bullish)
GOOGL 2 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
