Even as Goldman's economists have been bashing the Fed for not proceeding with a full blown LSAP QE, and have been warning repeatedly that the economy is due for a significant leg lower, here is Goldman once again doing all it can to trade (i.e. dump) its own inventory first and foremost, with a just released trade reco which in our opinion marks a market top far better than any squiggle on a DeMark chart. From Goldman: "We are recommending long positions in the Russell 2000 with a target of 860 (c+8%) and a stop of 765 (c-3%), marked relative to today’s open." As a reminder, for every client who is buying from Goldman, Goldman is selling. That is all.
Trade Update : Recommending long positions in Russell 2000
We are recommending long positions in the Russell 2000 with a target of 860 (c+8%) and a stop of 765 (c-3%), marked relative to today’s open. The FOMC tilted toward an incrementally more accommodative stance yesterday, and despite turn-of-the-year volatility, the four week moving average of UI claims continues to drift lower even after this morning's rebound. With financial conditions remaining easy and cyclical indicators still improving, we continue to lean in a pro-cyclical direction and are taking the opportunity to re-engage after stepping back last week. The Russell is a high beta, economic growth sensitive, and domestically levered implementation that has not outpaced other cyclical equity themes.
To be clear, there are few particularly striking laggards to the cyclically led rally amongst potential US equity implementations. And so, our tactical view here is less about catch-up then it is about continuing equity market momentum, driven by easy financial conditions and improving cyclical data. Outside of the US (EMs equities in particular) or outside of equities (longer-dated USTs), the scope for that sort of catch up looks greater. But, a more dovish Fed and data strength still concentrated in the US are the catalysts behind our tactical trade here and we wanted to express that equity view in a domestic-heavy way. Going forward, we do think that a better cyclical backdrop and easing financial conditions, typically a “sweet spot” the business cycle for equities, is a theme that could extend into the EM space and next week’s PMI data will be informative on this score.
Primary risks to the trade are still the two familiar ones. As always, Europe remains unsettled, on the one hand Greek PSI talks and a looming need for funding by March, are, for now, being counterbalanced by LTRO relief and improving data, but that could easily change. Second, the tactical view here is, not surprisingly, data dependant. Data have been surprisingly strong for some time now, and, as expectations ratchet higher, the bar to continue to beat goes up too. So, although the early data still look firm, we will evaluate the evolving dataset in light of our forecast call for a deceleration in 1Q2012 (and relative to fairly robust growth last quarter).