Strategy Note: February 2, 2024
WOTE US 60/40 and WOTE US Long/Short Equity
Current View
Action
WOTE US 60/40 equity exposure taken down to the minimum of 40%.
WOTE US Long/Short Equity equity exposure adjusted to -100% QQQ (via PSQ) from -50% SPY (via SH).
Discussion
The CDX market continues to refuse to confirm the move in SPX above the 4700-4800 range, and now breadth is plunging while all money gets sucked into the NDX Group.
The combination of Powell’s decisively hawkish statement and press conference and today’s blowout NFP report, against the backdrop of the breakout in key macro pairs Transports/Utes, Banks/Utes, and Discretionary/Staples begins to shift the Structural Outlook back into the bearish camp. As such, we feel comfortable taking exposure down to the absolute minimum into a bearishly divergent overbought market condition. Given election year dynamics with Yellen and Brainard protecting downside, this minimum exposure will be managed on a leash, but the upside for equities from current levels is extraordinarily limited with the Fed back in the game, thus the reward/risk ratio of an underweight/short position is quite favorable.
In the Long/Short strategy we want to express short exposure via QQQ in light of the relatively extreme breadth divergence that has emerged here over the last couple of trading days. This is purely a tactical move, as there is probably only 5-7% relative downside available in QQQs. As such, in WOTE US 60, where we are intentionally less tactical, we are more than fine maintaining our NDX Group overweight through the NDX-led correction likely to unfold in the coming weeks.
Positioning Framework
Disclaimer
NOT FINANCIAL ADVICE
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