I remain bearish and net bearish and net short as we get ready for another trading week to begin.
I recently substituted my short of the SPDR S&P 500 ETF (SPY) with out-of-the-money SPY puts. This strategy increases my delta and short exposure as stocks fall, which is what I want right now for a multitude of reasons that I've previously outlined in my diary.
The most important reason is that I believe that for the fourth consecutive year, consensus S&P 500 earnings estimates are simply too high. So are price-to-earnings multiples that fail to incorporate the more-subdued profit picture, the likelihood of a Federal Reserve policy error and the wobbly global growth, political risks and possible geopolitical threats that our flat and interconnected world faces.
And as I've recently emphasized in my diary (and in a recent Bloomberg Radio interview), the "negative wealth effect" of lower stock prices could push the U.S. economy over the cliff and into a recession. My current odds are for a 35% chance of a "garden-variety" recession and a 15% chance of a deeper recession.
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What I Expect in Coming Days
As for today's session, SPY will likely fill the $186 gap and the S&P 500 will probably fill its previous recent closing low of 1,859. However, I think a $181 "capitulation low" for SPY and a 1,810 intraday for the S&P 500 are still a distance away.