POSITION: covered SPY
On this morning’s opening market weakness, I decided to cover my SP500 short position. There is no emotion in the process – or at least there shouldn’t be. And having made enough mistakes in my risk management career, I’d rather not stay the course with another predictable one.
I don’t think this short squeeze is over, primarily because that’s what the math is telling me. What was intermediate-term TREND resistance at 1314 is now intermediate-term support – and now the bulls have every opportunity to squeeze a 1 out of this thing before The Pain Trade subsides (the Pain Trade is higher, not lower – with pain being the move that will hurt the most people).
When the world was complacent about US Growth and Bullish Sentiment was raging (Q1), The Pain Trade was lower. But -7% draw-downs have a funny way of changing both expectations and sentiment. In the last 6 months, the Street has cut their US GDP Growth estimates almost in half and the spread between Bulls and Bears in the II Survey has narrowed by 2,000 basis points from peak perma-bull to fear and frustration.
Across our 3 core risk management durations, we’ve outlined the lines that matter in the chart below:
- Long-term TAIL resistance remains 1377 (I’ve been using a level in that area code for 6 months and don’t see it being violated, for now)
- Intermediate term TREND support = 1314
- Immediate-term TRADE resistance = 1350
These are the kinds of markets that can drive you right batty, if you let them. So don’t. If something isn’t working – get it off your sheets, have a coffee, and roll on. A Risk Manager’s role is to be a realist – not dogmatic.
Keith R. McCullough
Chief Executive Officer