Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $10B AUM, offering volatility management solutions to its investor base worldwide. Mike has been publishing his daily newsletter (Monday-Friday) privately for the firm’s investors and his personal contacts in the investment business since 2008, sending shortly after the market close.
The opinions expressed below are my own
No August dip. In hindsight, it all looks so obvious. The market dipped a couple times in the middle of the month and investors bought the dip. Here’s the picture of the month.
Anyone buying could make relative gains on the S&P 500 as long as they bought at a price below 2470. From a monthly performance standpoint (still important to the money management industry) today was the last day to chase the tape to beat the index.
Once today’s open printed positively and the tape appeared to be stable, the tape climbed fairly steadily over the rest of the day. Money was chasing the tape, producing the last kick for the month. August is a officially a flat month and anyone buying these last two weeks *should* have some relative outperformance to talk about.
I can’t prove the above narrative by the way but I feel pretty good about it. Capital flow was 109% today. That’s a tad heavy but much higher than the last two weeks. Substantial money flowed through equities today even though there wasn’t a significant news event. Today was a quiet boring day. The size of today’s rally was bigger than recent volatility would suggest. *Some* force was at work today.
I don’t think one should fade this rally by the way. I think today is just a more noticeable example of the larger bullish trend, which is no big deal except….
This bullish trend is too obvious and too long in the tooth. Who doesn’t know to buy the dip at this point? The people actually doing it, keep profiting. The people not doing it, know to stay out of the way.
Long is a *crowded* trade. It’s been crowded for over a year but the vigor of recent rallies is greater. It’s getting more crowded by the tick. It gives me pause.
The proper way to play this is to join the crowd. I just don’t want to get flayed when the event (whatever it ends of being) happens.
It may not happen for years. I may keep getting goosebumps for the next 100% upside. Who knows?
So how can we ride the bull and not get caught with our pants down (to mix metaphors)?
- Move equity exposure elsewhere on the globe (Europe, Japan, and emerging don’t have the valuation/crowd problems)
- Stay in the US and
- Use long calls & long puts
I’m sure we’ll come up with some more clever ideas over time but right now I want to go with what works. No sense outsmarting ourselves.
Nonfarm payrolls data (180k est vs 209k prior) releases tomorrow.
That’s the event of the day. See you then,