The long exposure train began boarding passengers yesterday, with a continuation of the journey taking place this morning. The fear instilled within the hearts of investors has created a short-term buying opportunity, along with some clear deals on the aggressive beta side of the market.
There is an outside chance of the NDX wanting to kiss support at 7250 before a solid bottom is reached. However, the positive factors outweigh the negative to the point that risking 2-3 percent of index downside isn't a terrible trade-off.
What are those positive factors?
- Investors now BELIEVE that the macro situation is irreversibly tainted
- Investors have, yet again, piled into government bonds with negative real yields in the latest sign of panic
- Bond investors are forcing the Feds hand to accelerate rate cuts
- Earnings yield on the S&P drips ever sweeter juice the lower yields go with equities following along on the downside
- Sentiment towards equity has experienced an epic reversal from highly bullish to highly bearish in a single week
The outcome of such sudden shifts can be isolated fairly effectively, creating a positive expected value proposition for future short-term speculation.
As opposed to recent weeks, we now have both sentiment support and pending price support of the markets supporting the decision to take on long exposure.
For this week, at least, that's good enough. We're taking advantage.
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