Tactical Update: 10/16/20 (PREMIUM-UNLOCKED)

The following post was issued to TLS members on October 16, 2020.

Update on this week’s portfolio moves.

As mentioned in this week’s WMMR as well as the DSS posts this week, we have been looking to get longer on a net (i.e., covering shorts) and gross (i.e., buying more longs) basis in equities this week. This tactical shift is based on the recent strengthening in our Risk Model, particularly among breadth measures, and the coincident improvement in the technical charting structure of broad and smaller-cap indices. We have been acting on this objective this week. Specifically, earlier in the week we:

  • Covered (sold) our “short” position in European equities for a small loss as the VGK dropped down below 54
  • Covered half of our “short” position in financials for a small loss as the XLF dropped down near ~24.95
  • Added back a portion of our bond short that we had previously taken profits on as yields pulled back toward support (specifically, we bought back some more TBT (Inverse Long Bond) near ~15.95 after selling it near ~16.40)

Later in the week (mainly yesterday, 10/15), we,

  • Covered the rest of our “short” position in financials for a small gain as the XLF dropped down near ~24.50 (DJ U.S. Financials Index ~275)
  • We also added back (to a full position) our bond short as yields tested support (30-year yield ~1.46 (specifically, we bought back some more TBT (Inverse Long Bond) near ~15.70 after selling it near ~16.40)

The result of this week’s moves brings our net-long equity position to about +50% (a bit higher if including precious metals). Again, stay tuned to our DSS posts for further developments — they provide the most current updates to our investment portfolio and outlook, including trades we are looking to make imminently. Yesterday, for example, we gave a head’s up on the latter 2 moves before the fact.

FYI, if you missed any of these moves, don’t sweat it. While we did get the entry/exit points we were looking for, we may get the opportunities at such prices again. As the volatility market is suggesting (more on that next week), expect more volatility — and testing of yesterday’s lows — to come prior to a sustained new rally. For that reason, we have held off on aggressively adding further long exposure…but that will be next. Given the improvement in our indicators, market internals and key charts, analysis does suggest a new intermediate-term up-leg is likely in the offing (perhaps after the election).


Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.