My Strategy Is Neutral Equities
Since April, I have been explicitly clear about my stance on equities. The credit cycle was creating significant asymmetry to the upside, real rates were falling, and market breadth was accelerating. Over the last 5 trading days, we have seen a marginal shift in both positioning and macro forces that are beginning to create incremental risk. These risks are not screaming bearish but NEUTRAL. Below, I am going to lay out all of the moving parts, WHY this is taking place, and HOW to think about a shift back to bullish or potentially bearish.
Main ideas:
Short term positioning unwind is creating downward selling pressure in equities on a weekly basis, and it has not mean-reverted back up. As a result, we are now just over 3% off all time highs. While this is not necessarily a significant drawdown yet, some of the macro forces are indicating further risk.
My stance toward equities right now is NEUTRAL. If there is a clear shift that sets a short-term bottom, I will turn bullish. If there is a clear stance that creates further selling pressure, I will turn bearish.
Probabilities are ALWAYS shifting incrementally on the margins. Managing these risks are THE KEY for surviving in these types of markets.
I am going to explain the specifics for HOW to think about each of these points.
Equity Breakdown:
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