One (!) Red Flag: Positioning

Why I am careful and bullish at the same time

Some more reflections on the market tape:

Positioning is stretched, please watch the above video.

I got three strategic (“macro”) things I look at:

1.      Liquidity (for this I follow Crossborder Capital at X) —> very probably up for 2024 until 2025 which is bullish

2.      Positioning (Jason Shapiro) —> stretched, longest since 2 years!

3.      Inflation (Truflation.com) —> same thing, China too weak to spur Inflation here, the Fed will have to lower rates which is bullish on a strategic level

1 and 3 are a tailwind now, 2 is now a headwind.

As Jason points out, an overbought trend can go on a long time, he is waiting on a “news fail” event.

I am looking at the Quads (Network Momentum) and they still look o.k. (not great, but not bad either).

For new subscribers: here is a short video on how the Quads work —>

Tactically we are “long in the tooth” when it comes to the Quads, they basically are blazing since 11/3/2023.

Also, I look at breadth, but I reread stuff from CANSLIM, and it basically states, that breadth can be bad in a bull market (like 99). Frothy can stay frothy a long time. CANSLIM Number 1 Rule on how to read the market: how do the leaders behave, and I must admit they behave very, very good right now.

So, all this then leads to a compromise:

• I am not willing to be in leverage and my core long positions will be around 70-80%.

• At the same time, I am looking for tactical shorts to hedge my portfolio: for that I need the cash in the portfolio, I cannot sell small caps in a blink of an eye (liquidity, slippage!), the cash gives me optionality to get more neutral fast.

I am waiting for a big pitch until then I lean to be careful. At the same time the market can be frothy a long time, if this happens, I will participate with my 70-80% long position.

What is a big pitch situation, when to press into leverage and forget about hedges?

1.      A fresh Quad 1-2 after a substantial drawdown

2.      Positioning as bearish as possible (at least neutral!), nobody believes in the spike (“this is a bear market rally”)

3.      Inflation down

4.      Liquidity up

Not the case now, therefore the compromise based on the weighted evidence.

I would love to tell you we have an all-clear big pitch situation. Simply not the fact now, the danger of my carefulness is that I might fail to capture a super frothy market with leverage; but I got a family, and I am 54 and have not that kind of stomach.

Another subject: China

I get texts by friends who want to long it here, gee, just do not try to be smart here.

Just do not get sucked in as an investor. Even as a trader I would be very, very careful (it is bearish trend now, so do not bother), do not try to catch into a falling knife.

The first thing to decide is the country to invest in. My firm believe is, that the US is the best place to invest / trade.

If you really must invest outside of the US (feels smart, doesn’t it ;-)) I would have a look at India small caps via the ETF SMIN. India has a much “fairer” stock market and especially with small caps your interests are better aligned (lots of small caps have high owner / insider stakes). Plus, demographics are good in India and business knowledge is very rational (I worked with Indian companies in another life: they know how to scale businesses and are super great at marketing, branding, and sales), shareholder value orientation is much better.

Sorry for the rant, but I needed some more reflection and when I do, I write ;-)

All right, have a great week.

All the best and best regards

Andreas

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