Considering Defense As A Current Market Strategy

Includes: DIA, QQQ, SPY
by: Soos Global Capital
As you might have expected, recent market activity has shifted more of the balance of my time away from article/email writing, and towards micro-managing portfolios through the market maelstrom.
Among the many articles and research pieces that I’ve read this weekend that review last week's market and in preparation for the opening bell last night in Asia, the short note in this article (written by a NY based hedge fund manager) is a reasonable summary of recent data and events that have contributed to the market’s downfall in the past few weeks.

While the markets remain precarious and the tone continues to feel awful, when I read views like those above, however, I have to wonder if the end of the sell-off is close at hand. The author cites lots of meaningful stats, and concludes that it’s only the beginning of much more downside to come.

My main question is whether the recent market shellacking already prices in most of what he mentions. After all, as the chart below shows (), we’ve had a nearly 20% fall since the market highs of July.

To be clear, I’m not saying we’ve seen the bottom yet…which, if we were only focused on ‘value’ and ‘fundamentals’, we could argue we’re already there….but rather that the market, by taking out close to 20% of equity valuations overall and in many quality individual names well over that amount, is starting to get closer to an entry point rather than to an exit point.
The risk to the downside at this moment appears to be based more on investor ‘fear’, ‘uncertainty’, and at times, ‘panic’, than on properly further re-pricing asset valuations to the new US economic outlook (of slower growth, possible recession, prolonged unemployment, and all of the same in Europe, etc).

That said, if Washington is unsuccessful in bringing both sides of the aisle to the table in support of some immediate relief on the jobs front (not to mention closure and relief on the mortgage foreclosure negotiations with banks), then ‘fear’ alone will not drive asset prices lower, but actual re-pricing of more depressed economic outlooks and realities will likely be taking place.
Net net?
“Defense” remains, as it’s been for a while now, the ‘nom de guerre’ of current strategy.

Disclosure: I am long SPY.

Disclaimer: Please read and consider important information related to all communication made by Soos Global on by clicking here. This article is solely meant to be thought provoking and is not in any way meant to be personal investment advice. Positions may change at any time without notice.