There are a number of factors that have contributed to my decision to go net short in a big way, including:
- Narrow Market Leadership. We're back to a market that's basically led by the FAANGs -- Facebook (FB) - Get Meta Platforms Inc. Report , Amazon (AMZN) - Get Amazon.com Inc. Report , Apple (AAPL) - Get Apple Inc. Report , Netflix (NFLX) - Get Netflix Inc. Report and Google/Alphabet (GOOG) - Get Alphabet Inc. Report , (GOOGL) - Get Alphabet Inc. Report . Facebook, Amazon, Apple and Alphabet are holdings in Jim Cramer's Action Alerts PLUS.
- Rising Short-Term Interest Rates. The 2-year U.S. note yield is up about 1.3 basis points at 2.39%.
- Complacency. I'm seeing more investor complacency -- anecdotally, in the business media and elsewhere -- ever since market's main indices rallied off of their recent lows.
- Gold. The rise in gold looks solid. I'm currently long the SPDR Gold Shares ETF (GLD) - Get SPDR Gold Shares ETF Report .
- Lackluster Banks. We're seeing disappointing action in the financials. However, I continue to buy them. I'm long Bank of America (BAC) - Get Bank of America Corporation Report , Citigroup (C) - Get Citigroup Inc. Report , JPMorgan Chase (JPM) - Get JP Morgan Chase & Co. Report and Wells Fargo (WFC) - Get Wells Fargo & Company Report , although I'm shorting Goldman Sachs (GS) - Get Goldman Sachs Group Inc. (The) Report .
Lastly, with S&P 500 undefined closing at 2,706, the downside risk relative to the upside reward seems to argue in favor of maintaining a net-short exposure.
I've previously stated that I expect the S&P 500 to trade in a 2,200-2,850 range for 2018, with about 2,400 as fair-market value.
That means there are 506 points of downside risk to the low end of my S&P 500 range (2,200) and 306 points of risk to my fair value estimate of 2,400. However, I only see approximately 143 points of upside potential to the top of my predicted S&P 500 range (2,800). That's not a good risk/reward ratio.
At the time of publication, Kass was long BAC, C, GLD, JPM and WFC and short GS and SPY, although positions may change at any time.