In this clip from The Macro Show, Keith McCullough points to net long equity positioning as a reminder to buy low and sell high, not the other way around.
The Russell 2000’s Z-score is 3.96—that means the index is currently trading nearly four standard deviations higher than its one-year average. The Dow Jones’ Z-score is 2.74. Nasdaq’s is 2.36.
“Any number greater than 2 is a behavioral fade,” McCullough explains. “It doesn’t mean 100% of the time, you sell it. But if you’re at the top end of the Risk Range of something, and the Z-score is more than 2 … A/B test that going back my entire career, and that’s a beauty.”
“After things go down, people get bearish. After things go up, people get long,” adds Hedgeye’s Risk Manager in Chief. “That’s just not what we’re going to do. We’ve never done it that way.”
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