Posted by: jhamon | October 30, 2009

MysteryHedgie: Russell 2000 Relative Weakness…

As October ends, the focus moves to global central bankers pondering monetary easing “exit strategies”, with the FOMC to speak on Wednesday 11/4.

Given this context, it is no surprise that, along with the oil sensitive TRAN index, the small cap Russell 2000, a liquidity play, has led the downside (see below; RUY not making a new high in October). Expect asset markets to remain rangebound between this week’s extremes until FOMC, with our sense being that psychology had changed such that the Fed will have to explicitly state that it is not pondering exit strategies (we think this unlikely) in order to stop the developing asset price correction.

Risk is no longer cheap and defense (or downside profit!) is a function of spending some YTD P&L and trimming gross. Love to share ideas…

Russell 2000's Broken Trendline

Russell 2000's Broken Trendline

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