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%.
With the 2012 holiday season just around the corner, the U.S. retail sector is already gearing up for what could be another make-or-break year for many companies. Many retailers generate significant portions of annual revenues and profit during the holiday months of November and December, with Black Friday and Cyber Monday sales accounting for a significant portion of profits. And with this year’s rather dreary global economic outlook, companies have already begun ramping up advertisements and marketing strategies to get Americans on board again with the holiday shopping craze [see also Consumer-Centric ETFdb Portfolio ].
According to the National Retail Federation, up to 147 million shoppers are expected to visit stores and shop online this Black Friday weekend. But with many Americans still feeling the pinch, average holiday gift budgets are forecasted to remain conservative as cash-strapped shoppers reign in their spending; analysts expect the average holiday shopper to spend $749.51 this season, up slightly from the $740.57 that was actually spent last year. NRF President and CEO Mathew Shay believes that “More than half of Americans this holiday season will feel the impact of the economy and will compensate by doing what they’ve been doing for several years – looking for ways to cut any corners, comparative shop online and in stores more often, and even planning to travel less or not at all.”
Though consumer spending is not expected to hit its pre-recession highs this holiday season, the outlook is “cautiously optimistic” despite the challenges seen in our current economic environment. For those looking to make a play on the biggest shopping season of the year, we outline four retail ETF options that could see some high levels of activity in the next few weeks.
SPDR S&P Retail ETF (XRT): With over $610 million in total assets and an average daily trading volume of 3.6 million, this ETF is by far the largest, most popular and most heavily-traded retail fund on the market. XRT offers concentrated exposure to traditional brick-and-mortar retail giants, spreading exposure across about 95 individual holdings. Top holdings include Barnes & Noble (BKS), Netflix (NFLX), SUPERVALU (SVU), Stage Stores (SSI), HSN (HSNI) and AutoZone (AZO).
PowerShares Dynamic Retail Portfolio (PMR): This ETF is part of the PowerShares lineup of “intelligent” ETFs linked to benchmarks that use quantitative analysis in an attempt to outperform traditional cap-weighted indexes. The resulting portfolio is rather shallow with only about 30 holdings, though allocations are nicely spread out across large-, mid- and small-cap firms. CVS Caremark (CVS), Kroger (KR), Costco (COST), Wal-Mart (WMT) and Limited Brands (LTD) make up PMR’s top five holdings. Continue reading →