Time To Be Long Risk?

We've been dormant on these pages for a while. Everyone needs some sort of hiatus from the financial markets because things do get very dry and repetitive at some points in time. February was one of those times. So we're glad we took the time off from the markets, and focus more on the nuances of life instead.

In today's trading piece, we'd like to quickly address one point that we feel has some validity. Is it time to be long risk? Yes, but not entirely. And there's a catch to it. Here's why. 

Before you continue reading, do yourself a favor by pulling up daily charts of various assets. Currency pairs, oil, gold, stocks, and bonds. Most of these markets haven't gone anywhere for the past 30 days or so. And this is the key reason why we decided it was time to catch a break from the markets. It wasn't a bad decision.

Rather than chasing markets like headless chickens getting whipsawed by volatility and directionless price action, we continue to feel very strongly that being in cash (or on the sidelines) and waiting for opportunities is a pretty smart idea.

So back to the question, we feel it's time to be long risk, but only a very specific spectrum of risk. We'd like to be cautiously long equites, and will be seeking to accumulate a decently sized position over the next few days or week.

 Our technical breakdown on the price action of the SPX. Market structure looks pretty bullish to us. The recent attack on the 1800 big figure didn't yield follow through, and price held January's lows forming a double bottom. Notice the strong bullish bars following the impulsive bounce from 1800. There was some serious buying pressure above 1800. 1950 still remains a key resistance (and is also in confluence with the dynamic resistance that is the declining channel buffer extrapolated from previous swing lows back in 2015), and while price has trade above that level for a brief period of time, we want to see a clear daily close above. This should rally more buying and run stops on shorts into our primary target of 2000. This level is the most critical area in this chart as the market has pivoted around it 5 times before.  

Our technical breakdown on the price action of the SPX. Market structure looks pretty bullish to us. The recent attack on the 1800 big figure didn't yield follow through, and price held January's lows forming a double bottom. Notice the strong bullish bars following the impulsive bounce from 1800. There was some serious buying pressure above 1800. 1950 still remains a key resistance (and is also in confluence with the dynamic resistance that is the declining channel buffer extrapolated from previous swing lows back in 2015), and while price has trade above that level for a brief period of time, we want to see a clear daily close above. This should rally more buying and run stops on shorts into our primary target of 2000. This level is the most critical area in this chart as the market has pivoted around it 5 times before.  

We're 70% bullish 30% bearish. That makes us bullish. We're not entirely convicted yet, however. We'll get down to the reasons further down.

Risk is a very broad term. We're very specifically bullish equities and only a selected group of indexes. This market, we feel, will not be rewarding blind shots. Accuracy is critical to minimizing drawdown and maximizing potential returns.

We're looking at some EMs, and most DMs excluding Japan. We're particularly interested in Hong Kong, North America (ex. CA), and Europe, while are luke warm on the others.

Why bullish these few stock indexes? The technicals (price action) look favorable to us. Price action has been formative rather than destructive to a bullish case. Volatility has been subdued in these markets, and that's a very important factor. Sentiment amongst the press and investors is terrible. 70-80% of all news articles you stumble upon are either outright calling for a "crash", or are betting at things would remain ugly for the foreseeable future. Now those are very strong narratives and it pays to be a little cynical to what you're been fed on a daily basis.

When sentiment is this bad, and everyone is kinda biased towards one end, it doesn't take much for the market to move the other way. Positioning is not THAT bearishly poised but still far from neutral. This gives our bullish bets a strong base. But this remains to be seen in the coming days/weeks.

Then there are the fundamentals. What are the fundamentals actually? In today's convoluted world, the only "fundamentals" that truly matter are central bank activity. On this front, more and more of the major central banks are expected to loosen policy. Come 10 March (2 more weeks), the ECB is widely expected to either increase the size of its QE program (PSPP), or lower interest rates further into negative, or both!

Today, the PBoC (China's CB) cut its RRR by 50bp. This is the 5th time in less than 2 years China has cut either its repo rate or RRR. The Chinese are now in full easy policy mode and will continue to be. 

Forget about the Fed for now, as the FOMC is probably more polarized than the Americans over Clinton and Trump. We're not interested in currency at the moment, as we don't see much opportunities in that market. 

As always, trade accordingly to your views, and remember having no position is a position by itself.