One of our three Q3 2011 themes is Risk Ranger. The premise being that many asset classes will be range bound over the intermediate term as we get continued Policy Pong between the United States and Europe. With the dramatic rally since the Gang of Six proposal three days ago, we can safely assume that an extension of the debt ceiling is now getting fully baked in to market prices.
The SP500 is flirting with our TRADE resistance line of 1,344. A close above that level would put our TAIL line in play at 1,377, but our view remains that the top end of the Risk Ranger range will hold. An astute client asked us today if we believed in today’s move in the SP500. The simple answer is that until fundamentals change in conjunction with a validation by price, our thesis remains intact. As a result, we made the following moves in the Virtual Portfolio today:
- Bought Silver (SLV)
- Sold Covance (CVD)
- Shorted Financials (XLF)
- Shorted the Euro (FXE)
- Shorted Spain (EWP)
- Shorted Italy (EWI)
- Bought Icon (ICLR)
- Sold Carnival Cruise Lines (CCL)
- Covered Grains (JJG)
In aggregate, we took advantage of an opportunity to lay back out some of our bearish bets on Europe, and take down exposure in the Virtual Portfolio by adding a net three new short positions.
While CNBC is trotting out the equity bulls today, the data and news flow with continues to urge caution and tight exposures. The key points to highlight in that regard are as follows:
- Unemployment claims remain above 400K, which means we will continue to see little to no improvement in the unemployment rate;
- Existing home sales fell and inventory grew to 9.5 months, the highest level since November 2010; and
- The Intrade contract on a debt ceiling increase by August 31st hit a new low at 72%.
Trade the Risk Range.
Daryl G. Jones
Director of Research