Diary of a Financier

A Compass

In Capital Markets on Tue 16 Aug 2011 at 23:33

Oh, one last thing before today is out: if I hear another pundit utter “buy Large Cap stocks with big dividends,” I’m going to mortgage my own house to short them. When everybody’s doing/saying it, I have to figure out how it’s about to unravel. I hear a chorus like this every now and then; the last occurence that comes to mind was a CNBC analyst remarking, “since the debt deal is done, I can’t see how every trader on Wall Street doesn’t make enough in today’s market to retire by week-end.” Suffice to say, he top-ticked that one.

I’ve assembled a list of longs & shorts to deploy when SPX resumes its descent proximately. I also have a shopping list of stocks I’d like to accumulate “on sale” while SPX is bottoming. (Traders & investors have to be prepared.)

With that in mind, I turn to a compass: the QE1/QE2 analogue, which compares the market reactions at the end of each program. Overlaying the S&P 500 (SPX) v. Aggregate Bond Index (AGG), I find the year-to-date iteration perpetuating the cute QE analogue:

SP v AGG (daily)- perfect analogue of QE1's end.

SP v AGG (monthly)

Unlike the QE1 expiry in 2010, the momentum in today’s equities is near historical highs (shying away from a secular trendline in MACD). A correction would do this market good if it intends to sniff 1425 within a few quarters to a year.

You know I’m bearish on the coming weeks. I might forgo the market timing by buying some intermediate/long bonds as soon as tomorrow. Consider it my test balloon, after which short equity positions will soon follow. I’ll be crunching some data in the wee hours of Wednesday. Maybe I’ll post some numbers later in the week, but I need to figure out which vehicle yielded the best total return between April 1-August 21, 2010: US Corporate Credit (CLY/CIU), Long Treasuries (TLT/TLH), or Intermediate Treasuries (IEF).

–Romeo

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  1. […] left my last entry open-ended: You know I’m bearish on the coming weeks. I might forgo the market timing by buying […]

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