Current View
Action
WOTE US Long/Short Equity now -50% short via the SH ETF. This is the final slug of degrossing following on the move made January 19.
Discussion
As discussed this morning via the Market Journal, a 200 point gap between SPX and IG CDX has opened up with SPOOZ at 4700, and since this morning the VOL market has gone green, indicating VOL has likely reached its final nadir before a pullback into March.
Typically with powerful breadth thrust signals at the market’s back and a Treasury heavily incentivized to drive the economy and asset prices higher into Election Day one would not risk taking a shot at the short side, but this is a highly unique environment as a result of the Fed needing to keep the economy, inflation, and inflation expectations at bay.
Simply put, with the OIS market inappropriately priced for five rate cuts in 2024, TIPS break-evens moving higher, and oil still on its back but perhaps poised to move, and the long end of the UST curve is on the cusp of moving into the 450-500+ danger zone on the back of a reacceleration in economic activity, the tactical risk/reward being long equities right here and now at SPX 4900 is terrible looking out 4-8 weeks. The correction is unlikely to be deeper than -10%, but the likelihood of a -10% correction is very high from here.
Positioning Framework
Disclaimer
NOT FINANCIAL ADVICE
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