POSITION: Short SP500 (SPY)
Being short the SP500 today would make me wrong. I get it. I’m not going to point fingers or make excuses. The screen tells the score. Ben Bernanke has beaten me today.
I’m not always sure how it feels on the days preceding crashes, but today definitely feels as different as a few days did in late 2007. Not only from a price, volume, and volatility perspective, but in that dangerous place that we market practitioners call our gut. Any move beyond the 1215 line in the SP500 equates to a 3.3 standard deviation move on my key immediate term TRADE duration. These happen very infrequently. Someone might be blowing up.
I’ll leave getting today wrong for those who want to be focused on yesterday’s mistakes. Right here and right now our immediate term risk management task is to manage toward the risk that will be in this market tomorrow. In the chart below, we have outlined the immediate term TRADE risk to the downside at -3.5% (1173). Could it all happen in a day? For sure. I wouldn’t call it more than a 1.7 standard deviation move, which is normal – put it that way.
I’ve moved to 70% Cash in the Hedgeye Asset Allocation Model. However painful, tops are processes, not points.
Keith R. McCullough
Chief Executive Officer