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  1. Home
  2. / Investing

Doug Kass: Trading/Investing by the Numbers -- And Without Emotion

Here's why we raised our net long equity exposure in a relatively meaningful way.
By DOUG KASS
Mar 14, 2023 | 12:30 PM EDT

Finally, an oversold.

And we responded by raising our net long equity exposure in a relatively meaningful way -- while selling some of our Treasuries.


Sellers got a huge crisis and yet still can't get the S&P sub 3800.

Food for thought...

- Godzilla Trader ¿ (@David_Tracey) March 14, 2023

Not only did the S&P 500 move back into a more attractive buying zone but the equity market finally hit an oversold and the bond market reached a short-term overbought.

These conditions resulted in our buying of stocks and paring back our Treasuries holdings:

1. The S&P Oscillator fell dramatically -- to a deeply oversold -7.04% -- a rise from -5.05% on Friday, -3.96% on Thursday and from only -1.23% last Wednesday.

2. S&P cash closed at 3855 -- about 45 handles below "fair market value" at 3900. Upside reward is finally favorable relative to risk, with +245 handles of potential upside vs. -155 handles of possible downside -- that's a positive ratio of 1.6x.

3. It was a six sigma event for bonds on Monday -- resulting in a deep, short-term overbought. We sold a portion of our Treasuries right near the day's high!

To put the rise in prices and decline in yields into perspective:

Today the 2-year note yield declined 61 bps. This was the biggest one-day decline since Oct 1, 1982 (the first discount rate cut following the Sept 1981 all-time peak in yields).

To emphasize, today's decline in the 2-year was larger than any one day seen during the 2007 - 2009... https://t.co/cb4AiEuJSk pic.twitter.com/V9gdhmF23x

- Jim Bianco biancoresearch.eth (@biancoresearch) March 13, 2023

and

A bit of Treasury buying last few days Treasury yields are down sharply over the past couple of days. @soberlook charts https://t.co/O3ZV8Pym1w pic.twitter.com/X3q1LAMHk3

- Mike Zaccardi, CFA, CMT (@MikeZaccardi) March 13, 2023

The markets have repriced Fed rate hike expectations:

While spreads followed the crazy price rise:

Today's surge in U.S. high-yield bond spreads was the biggest one day pop since March 2020. pic.twitter.com/eP5QLqeSqC

- Lisa Abramowicz (@lisaabramowicz1) March 14, 2023


Bottom Line

As contrarians with a calculator in hand we have raised our equity exposure and we have reduced our fixed-income holdings.

(This commentary originally appeared on Doug Kass's Daily Diary on Real Money Pro at 9:00 a.m. on March 14. Click here to learn about this dynamic market information service for active traders and receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Kass was long SPY, QQQ; short SPY calls and QQQ calls.

TAGS: Indexes | Investing | Markets | Trading | Treasury Bonds | Banking | Financial Services | U.S. Equity

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