Yesterday, in providing the best daily indicator of which way the market will trade, we reported just before the market open, that the biggest fade in the history of capital markets, Dennis Gartman, had bought "far out of the money SPY puts." The S&P then soared and never looked back, on the shoulders of the latest abysmal macro data.
Which brings us to this morning where Gartman writes that share prices have risen quite sharply since yesterday, "and we begin by admitting that we were uncommonly, inordinately, improperly bearish, believing that the weakness that had developed since last Friday’s collapse had merely been consolidated… had merely been corrected.. and that further weakness sufficient to carry the global market generally and the US market specifically downward toward 2075-2080 in the S&P. Further, we were convinced that the break that had taken place in the EUR STOXX 50 as the short term upward sloping trend line going back into late June had been definitively broken would give way to lower prices all across the European equity markets. We were wrong."
We were wrong because there is still confidence on the part of the investment community that the magic elixir of central bank expansionary policies shall carry the day. We may not any longer believe that to be true but it matters not what we think; it matters only what the collective mind-set of the universe of investors thinks. It matters not what the economic fundamentals may dictate; it matters only what that same collective mind-set dictates, and for the moment the notion of TINA… There Is No Alternative… obtains. We may believe that CITA… Cash Is The Alternative… is the better investment choice, but it matters not. We are wrong; the market’s collective psychology is right and that, as they say, it that!
Also, one of the biggest mysteries of 2016, how Gartman could be outperforming the market, has been answered: he no longer is.
For the year-to-date, stocks as measured by our International Index are up 4.2% while stocks here in the US as measured by the S&P are 5.0%. We, on the other hand, having gone through the singularly worst three week period in the past two or three years are down a bit more than 3% for the year-to-date. We have simplified our position, cutting it back to only a long position in aluminium, hedged with sufficient derivatives positions to leave us marginally net short of the equity market, and long of gold in EUR denominated terms.
Finally, for those asking if they can re-short stocks, the answer is yes: Gartman is now on the "sidelines."
We may be right on the crude oil market; we may be right on the bond market; we may have been right … or soon shall be… on the EUR, but we are and have been uncommonly wrong for the past week on equities. As Hamlet told Ophelia, “Hie thee to a nunnery,” we shall hie then to the sidelines:
Judging by the market's tumble after the open trading, the algos got the memo early. Trade accordingly.