Everyone Missed the Real Signal Last Week
Volume 144 - The Week Ahead
The market doesn’t wait for your conviction, it punishes your hesitation.
Markets finished the week flat, but under the hood, it was anything but. De-grossing continues. Fundamentals aren't driving price; positioning is. High short interest/retail favourites squeezed. High-quality + momentum took a breather. Vol Control is still reallocating and CTAs are still buying. It's all mechanical. And yet... still, nobody believes it. I know I say this every week, and every week it becomes more obvious: this isn't euphoria. It's disbelief and a structural bid. Pullbacks aren't being sold, they're being vacuumed up. Not because people are bullish, but because at this point, they can't afford to be left behind.
De-grossing ≠ Rotation
Let's clear something up, what's happening beneath the surface isn't sector rotation. It's de-grossing. There’s a difference.
Goldman's latest Prime data shows this:
Fundamental L/S gross exposure fell -1.3 %pts, now 211.7%
87th %ile vs 1Y lookback, 96th %ile vs 3Y
Net exposure fell -0.1 %pts, now 51.7%
39th %ile vs 1Y lookback, 42nd %ile vs 3Y
(Goldman has Fundamental net % -2.3pts YTD, with markets at ATH)
Source: Goldman Prime
This isn't hedge funds getting long new names. It's longs being sold and shorts being lifted. Quality/momentum are being trimmed. Meanwhile, the worst-of-the-worst is ripping. High short interest, no earnings, low float, you know the drill.
People will say, "But Fed, the Russell's outperforming!" Sure, some have made a dash for trash but the junk is squeezing because it's a source of funding, not because anyone wants to own it. Go flick through the index. You'll see why I treat it as a funder, and something I never own, but time to time something I rent. Talking of owning something… the new software basket drops in this post!
Here's the part that's keeping me up at night...