Cashing In Some Chips

January 10, 2021

I’m moving portfolios to at least 35% cash and hedging some positions. Other may call it insurance or protection.

I say this with nearly 3 decades of experience which includes studying market and investor behaviour along with some pattern recognition and statistical analysis………

combined with observing unquantifiable occurrences (such as a capital raising and IPO frenzy)……..

and various indicators (amongst currencies, bond, equity and commodities) are aiding my stance and highlighting notable extremes (and peaks) in certain markets and specific assets/securities……

which help me come to a conclusion that I am not going to stick around for the last 10% of this market.

Some of those observations include;

the S&P 500 index is trading at 34% above its weekly moving average (MA)

the only other times when this metric was higher occurred in October 1987, July 1998 (coinciding with the demise of LTCM and the Russian financial crisis) and March of 2000. (funnily, a 14%-18% decline back to its 50MA is only back to the October 30th mark);

the CBOE Put/Call Ratio is at 0.44, which indicates call buyers are outweighing put option buyers notably;

88% of NYSE stocks are trading above their 200 day moving averages (only seen 3 times in the past 20 years);

the amount of Net Long Commodities futures and options contracts (2.3 million of them) are at their highest since January 2011. (take a look at your CRB and Bloomberg Commodity Indices around the first quarter of 2011)

Equally, the CRB Index is trading at its most overbought levels since April 2014.;

In fact, bullish bets on Corn are at their highest in 10 years. This coincides with my recent note about Corn (and soybeans) being extremely overbought. A reversal in the corn prices makes inputs cheaper for Kellogg…..

Parabolic price action in Bitcoin and Tesla now has those assets trading at 172% and 151% above their 200 day moving averages. (we’ll be looking to buy some Put Options in specific tech stocks);

The AUD/USD is the most overbought (on a weekly basis) since September 2017 when it was then trading at 0.8050, while the AUD/JPY hit a similar measure not seen since December 2016;

While all of this is going on, Gold has spent time digesting and has now traded back to its 200 day moving average.  ❤️

I’m much more interested in Gold (US$1,847) and gold equities today.

Brent Crude has spent a few weeks tickling 3 (not 2) standard deviations above its mean and should come back from $56 to $47;

If you thinking about Short Government Bond Yields……beware, it could be a trap;

This is not a wholesale call to exit assets because we all have our certain stocks and special situations to own and reasons for them.

In fact, I anticipation deploying some capital into more defensive and staple orientated businesses…….

but as far a broad, macro market call……this is my current position.

Clients will receive separate and specific advice to consider actioning……

In the meantime, keep in mind there are times to heighten your awareness towards managing your portfolio, exposure and risk……….

this is one of those moments.

Until next time,

Warm Regards,

Rob Zdravevski

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