We have exited the thrust off the bottom stage and now entered the chop zone. Yesterday is typical for the beginning of the chop phase, where morning dips are voraciously bought.
Considering how global equities are trading, with the US massive outperformance, US equities should be weaker. But it really hasn't paid well to be a bear of the S&P. And if the S&P goes down, there are much easier prey that will go down with it just as well.
Even though it is a popular short, I agree that emerging markets is a short and will stay that way for quite a while. My baseline case is still for emerging markets to lag the US, until it gets to a breaking point and everything goes down together. We are not at that point yet, but with China getting weaker and weaker, I imagine something will crack within a month. So I remain bullish bonds, and neutral to slightly bearish on the S&P, and bearish emerging markets.
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I see that market is expecting improving economy. If economy does improve, SPX will grind higher. But if economy weakens, SPX will drop sharply. Among all asset classes, SPX is the only one that has not responded to weakening economy scenario; as of now, the downside of shorting SPX is actually the lowest compared to long UST, long gold and short USD. Agree? Thx
I usually don't like shorting the strongest stock/sector/country. I realize there is a big valuation gap between SPX and everything else, but much of that is due to stock buybacks where supply has been reduced in the face of higher demand from the investing public. Those stock buybacks will not be reversed, unlike stocks bought by the public which needs to be sold later.
With the plentiful USD liquidity, it makes it much better risk/reward to just short something in another country or to get long Treasuries.
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