Trump's 10% baseline tariff will result in slowing economic growth. But the pain trade in equities is higher. And more thoughts on the long-end, crude oil, and JPY.
I was curious on your thoughts about relative value trades rather than outright longs/shorts.
I've bactkested some basic risk parameters (nothing fancy, momentum and internals, but a way to characterize market status) and was thinking that, when both momentum and internals signal stress, it's probably more logical to try relative value trades than long or shorts.
For instance, a classic one I've been on/off (stopped out more than once) was long 10y bonds vs Short SPY (Vol adjusted sizes).
This trade doesn't necessarily limit beta exposure, given bonds and stocks tend to be differently behaved asset classes, but I've applied the same logic to, for instance, a long Argentinian stocks I placed last thursday on rumors of a new IMF plan and capital account controls being relaxed. I went long a few very liquid names there, but I shorted the SPY against them (vol adjusted again) because I wanted a cleaner expression of my view and not beta- or at least not as much.
I'm curious what you think about this idea of relative value plays when markets are more stressed, and if there's a way (probably more than one) that you use to characterize market structure and if and how that affects portfolio construction and stop loss/position sizing.
I do think it's a traders' market and I believe investor are better off being flat risk here, or at least heavily reducing exposure until more clarity arrives.
Thanks again for your writings, really enjoy them.
Hey Valentino, thanks for the comment and great question.
Personally, I trade directionally. If the market doesn’t give me opportunities, I just remain flat. I am restricted in what I can trade, so I am trying to keep it clean and simple. But your logic around RV or long/short trades makes sense to me.
My typical risk per position is 1% (entry to stop). At the moment, it’s a bit less than that because the market is so volatile and headline-driven. The max risk per trade is 2%.
My views are based on 1) positioning (CoT data, options data, sentiment surveys, what I read on X), 2) the price action I observe vs the news flow (e.g., positive news but bad reaction and vice versa), 3) technicals (e.g., DeMark signals) and 4) my macro view (what I write about each weekend).
Dear Mr. Repo.
Thanks once again for such a great piece.
I was curious on your thoughts about relative value trades rather than outright longs/shorts.
I've bactkested some basic risk parameters (nothing fancy, momentum and internals, but a way to characterize market status) and was thinking that, when both momentum and internals signal stress, it's probably more logical to try relative value trades than long or shorts.
For instance, a classic one I've been on/off (stopped out more than once) was long 10y bonds vs Short SPY (Vol adjusted sizes).
This trade doesn't necessarily limit beta exposure, given bonds and stocks tend to be differently behaved asset classes, but I've applied the same logic to, for instance, a long Argentinian stocks I placed last thursday on rumors of a new IMF plan and capital account controls being relaxed. I went long a few very liquid names there, but I shorted the SPY against them (vol adjusted again) because I wanted a cleaner expression of my view and not beta- or at least not as much.
I'm curious what you think about this idea of relative value plays when markets are more stressed, and if there's a way (probably more than one) that you use to characterize market structure and if and how that affects portfolio construction and stop loss/position sizing.
I do think it's a traders' market and I believe investor are better off being flat risk here, or at least heavily reducing exposure until more clarity arrives.
Thanks again for your writings, really enjoy them.
Best,
Valentino
Hey Valentino, thanks for the comment and great question.
Personally, I trade directionally. If the market doesn’t give me opportunities, I just remain flat. I am restricted in what I can trade, so I am trying to keep it clean and simple. But your logic around RV or long/short trades makes sense to me.
My typical risk per position is 1% (entry to stop). At the moment, it’s a bit less than that because the market is so volatile and headline-driven. The max risk per trade is 2%.
My views are based on 1) positioning (CoT data, options data, sentiment surveys, what I read on X), 2) the price action I observe vs the news flow (e.g., positive news but bad reaction and vice versa), 3) technicals (e.g., DeMark signals) and 4) my macro view (what I write about each weekend).
I hope this helps!
Thank you for your reply, Mr. Repo.
Greatly enjoy your work, thanks for sharing!
Best,
Valentino
Great write-up!
Thanks, appreciate it, Bennett!
Very insightful. Thanks!
Thanks Fernando! Appreciate it!