Following on from our tactical switch to the bull side on Thurs/early Friday morning, and that has played out very well for our clients as the returns table below relays in relation to our Global Macro account, here’s an update on our thinking following the release of the latest ML fund manager survey results:
Past performance is not necessarily a guide to the future. Returns are gross before the application of Titan’s fees.
1. Global cash levels are near 10 year highs (5.1% vs 4.5% last month).
2. Global investors protection against a downside move is at a 6 year high. This is not surprising given the revelation HERE and a material increase in option volumes in recent weeks.
3. The biggest drop in EU equity allocation in 3 years (net 13% vs 35% in July).
4. Allocation towards UK equities fell for the 3rd month in a row (13% underweight vs 8% underweight in July).
The above is not a recipe, certainly from our experience in the markets, for a crash or continued sharp routing in the near term, specifically in the underperforming regions like the UK & Europe. In unison with the continued fear in the market, as evidenced by the measure from CNN below, the time to be long volatility and aggressively short has now passed, we believe.
Given that the DAX is the most oversold (see chart below) on a daily basis that it has been since the summer 2011 European woes flare up, we remain tactically long this index and indeed believe the underperformance relative to the US in recent weeks could correct during the remainder of this month and after option expiry on Friday. We have also been layerin long silver exposure once more in recent days expecting another sharp rebound in the weeks ahead and to possibly take out resistance around $22 that would signal to us that the secular bull market had started once again in earnest here.
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This piece should not be taken as an advocation to buy (or sell) these instruments and you should always take independent financial advice in relation to your own circumstances.