Posted by: jhamon | February 9, 2010

MysteryHedgie:Further To Go In De-Risking

Markets are breathing a sigh of relief today as ECB head Trichet’s early return to Europe is being taken as a sign that help is on the way for Greece, causing the tide of uncertainty to ebb a bit. Bernanke’s planned post-snow blizzard talk about the Fed’s “exit strategy”, when it occurs, will also ease uncertainty.

Given the price action of the last several days and the move since January 19, it is reasonable to ask “Is the correction over?”  One of our favored measures of risk (if for only the fact that government related fund flows don’t directly influence this relationship), S&P 500 vs. Emerging Markets (see below) leads us to believe de-risking has further to run in price and time, as this pair has moved through important resistance. Continue to stay defensive and consider owning options for protection, as recent levels of realized volatility are catching up to implied prices, making valuations attractive. Government sponsored uncertainty is going to ebb and flow throughout 2010, but it will not disappear.

S&P 500 vs. Emerging Markets

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