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
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
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.)