CHART OF THE DAY: Market Positioning Matters

The SETUP (market positioning) matters, big time, especially at the turns. In fact, the setup usually perpetuates the speed of the melt-up or draw-down. My process goes both ways, don’t forget.

Obviously FX, RATES, and COMMODITIES markets have been signaling #Quad4 USA and China for over a month now. But the US Equity market didn’t start to undergo what I call a Bearish #Quad4 Phase Transition until the last 2-3 trading days.

Only 1 week ago today, here was that epically complacent and capitulatory US Equity SETUP:

1. BETA (SPY) was probing the top-end of my @Hedgeye Risk Range (which is a “sell-some” signal on its own)
2. IVOL (implied volatility) was trading at an 8-11% DISCOUNT vs. 30-day realized
3. GROSS hedge fund exposure was in the 95^th percentile of 1-year readings

That last bit wasn’t surprising to me but was at least quantified by my friends at Goldman Sachs yesterday. There’s a good Bloomberg article explaining the same from Morgan Stanley’s prime brokerage data as well this morning.

As is usually the case, the Old Wall and its media tells you precisely what happened… after it happened… with no proactive risk management notes, signals, or process prior to it happening.