Wednesday, March 25, 2015

Saturated with Equities

The retail and institutional crowd are loaded up on equities.  Not just US equities, but also Japanese and European equities.  It is a triple barrel of overpriced assets loaded up on household balance sheets.  At post 2009 highs for all 3.  In the meantime, cash and fixed income are at low levels.

As you can see in the link above, it seems like the most likely scenario is a rebalancing the hard way:  equities going down, leading to a flight to safety in Treasuries.  This is all big picture stuff, but we are much closer to the inflection point where corporate buybacks don't move the needle enough to fight the fundamentals of slowing earnings growth and overvaluation.  Unless you get a bubble mentality of investors selling even more of their fixed income to buy stocks, you will see the hard rebalancing:  down equities, up Treasuries.

We are consolidating the rally from the FOMC, in a bearish way, as the market looks tired here.  Even a weaker dollar isn't able to provide a lift this morning, after the down day yesterday.  Just weak.  Going forward, I will probably be playing the short side on S&P with put spreads, which are cheap and offer good risk reward ratios, even with the Friday manipulations notwithstanding (a story for another day, but expiration days usually manipulated by institutions to make puts as valueless as possible).

Crude oil is a good short at these levels, will look to add to my short after the inventory report.


Anonymous said...

Inventory report came in pretty high, yet crude is only off a bit. Thoughts?

thanks for the great blog.

Market Owl said...

I would focus on price levels to add to crude oil on the short side. Anything above 48 is a good level to short. Crude is acting strong despite another big build, but I am not daytrading this, but playing a longer term time frame, I added some more in the 48.35 area.