Below excerpt courtesy of this a.m. edition of Rareview Macro’s “Sight Beyond Sight”
“..The call today by the professional community for a retracement of the recent weakness in Equities is very loud…
This viewpoint disregards the fact that S&P 500 futures are already 2.5% higher than Monday’s intra-day low. The key point being is that with the last price in index futures at ~1848 the market is right back at the 50% retracement of the April high (~1892) and low (~1803).
In our view this thought process misses the point. The real takeaway is that after weeks of instability many are finally resigned to a pause in the mean reversion of last year’s strategies. This also includes a contraction in the very high intra-day volatility. Meaning, the peak-to-trough index ranges should narrow into option expiration.
While we do not fully agree with the shift in sentiment we are mindful that the price action argues in favor of a retracement in certain strategies and we will adjust some positioning in the model portfolio to be prudent..
Firstly, the model portfolio pre-market closed out the entire short Small Cap (IWM) and long Large Cap (SPY) relative value strategy. We covered the IWM short for 112.22 and sold the SPY long at 185.36. While we still believe this is a great intermediate-term theme the fact is that we never thought we would be able to generate more than 5% of outperformance this quickly relative to when we deployed the strategy on March 19th. We will look to re-initiate this position in the near future if it were to retrace 3-4%.
The “ETF Professor” over at Benzinga has already constructed his ETF portfolio in advance of winning the now, $640 million jackpot scheduled for drawing tonight. The model portfolio comprises a nice mix representing energy, gold, emerging market, consumer staples, high yield bonds, blah blah blah…
Here’s the verbatim extract courtesy of Benzinga On Line:
Consumer Staples Select Sector SPDR (NYSE: XLP[FREE Stock Trend Analysis]) The Consumer Staples Select Sector SPDR is of course low-beta and almost downright boring in the world of sector ETFs, but just because one has $360 million to play with doesn’t mean that they should be taking on excessive risk. At least one of your new ETF positions should be something for the long-term and something that won’t cause lost sleep at night.
A stake in XLP would make your grandad and Warren Buffett proud. Rounding up a bit, 1 million shares of XLP would run about $34 million, leaving the Mega Millions winner with $325 million, some of which can be devoted to the…
WisdomTree Emerging Markets Equity Income Fund (NYSE: DEM) Of course some of the winnings should go to an emerging markets fund, but we can do better than standard fare such s the Vanguard MSCI Emerging Markets ETF (NYSE: VWO). There’s a lot to like with DEM, including a yield approaching 4% and that the fund is up 12% year-to-date, just be advised Brazil and Taiwan account for over 43% of the fund’s country allocation.