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POSITIONS: Long Utilities (XLU); Short Industrials (XLI)

Since Keith is out of the office performing some proprietary “field analysis” with his family at Disney World, I’ve been handed the pen on our quantitative risk management update. Fundamentally, we remain bearish on U.S. equities from a TREND-duration perspective and recent quantitative signals are confirming our non-consensus view.

This confirmation is highlighted by the U.S. equity market (as measured by the S&P 500 Index) failing to eclipse its immediate-term TRADE level of resistance (formerly support) at 1,395. Simple moving averages aside, that’s an explicitly negative PRICE/VOLUME/VOLATILITY signal. Across durations, our updated risk management levels are as follows: 

  1. SELL TRADE = 1395
  2. BUY TRADE = 1356
  3. BUY TREND = 1348 

Not Decoupling: SP500 Levels, Refreshed - SPX

Talk of the U.S. being a “safe haven” or its outright “decoupling” is what it is and we are not all surprised to see those kinds of phrases bandied about by consensus at yet another cyclical market top, insomuch as “raising cash” tends to dominate consensus recommendation at cyclical troughs. All told, we continue to view such process-starved analysis as constructive of asymmetric mean reversion opportunities on both the long and short side across various asset classes.

Not Decoupling: SP500 Levels, Refreshed - 1


Not Decoupling: SP500 Levels, Refreshed - 2


While it remains to be seen if 2012 will play out similar to 2011, one thing we are certain of is that this is definitely not the 90’s.

Darius Dale

Senior Analyst