Below extract courtesy of Neil Azous, founder of Rareview Macro LLC and publisher of Sight Beyond Sight, the macro-strategy newsletter.
Professionals Actually Sensitive to Weaker Risk Assets Over The Next Few Days
• Model Portfolio Trade: Short NASDAQ
• Partial Switch ofFunding Leg of Carry Trade Impacting Risk Assets
• China MSCI A-share inclusion update, CNY Observation, & Data Surprise
• Our Core Position – Short EUR/NOK – Gets Added Boost from Paid Forecaster
• Gold & Real Rates
• Eric Cantor
Model Portfolio
The model portfolio sold short 132 (~10mm) NASDAQ futures (symbol: NQM4) at 3788.25. This is the first time in a long while that we have added directional downside exposure. We are open to adding to this position but would also not hesitate to remove it quickly if it turns out to be wrong.
We have several reasons for this move. One is that the S&P 500 closed between 1949 and 1951 for the last three days and that concluded our call from late April that you should not “Sell in May & Go Away” as the S&P 500 would trade higher to the 1920-1950 range. Another is that the major US indices or key names – SPX, NDX, QNET, AAPL, and WFC – are all now extremely overbought on a relative strength basis. For example, the 9-day RSI’s now range between 70 and 85. The final one is that we are just a bit more sensitive to the profile into the end of the week. Here’s why:
1. The price action in currencies and fixed income over the last three days suggests something in equities should give.
2. The situation in Iraq and its potential impact on the oil price is much larger than most people realize at the moment. The Borsa Istanbul 100 Index (symbol: XU100) is -2.55% is showing the largest negative risk-adjusted return across regions and assets following reports that Turkish diplomats have been taken captive in Iraq. Also, the US Dollar relative to the Turkish Lira (USD/TRY) and Swiss Franc relative to the Turkish Lira (CHF/TRY) are showing the largest back-to-back positive risk-adjusted return across regions and assets. The latter is always interesting when the Sheiks feel like it is time to move some money from the nation perceived to be the most secular/moderate in the Middle East to Switzerland. While that is only one day of price action so far, it is reminiscent of the Arab Spring rotation a couple of years ago.
3. The Eric Cantor news is disruptive.