What happens next?

Last week’s price action was one for the history books, or at the very least, it will be up there among the more “memorable” sessions. Events like this leave investors and analysts dazed, confused, and probably, a bit bruised too. The obvious question now is: what happens next? To which the only obvious answer is; who knows. That said, I reckon this question itself has to be answered in two parts. The first is whether it’s time to buy the dip in risk assets, a question that invites all sort of cliches. It probably depends on your timeframe, not to mention the more obvious point; do you fell lucky? For the record, I re-arranged the portfolio slightly last week, raising cash levels, and selling short-term U.S. bonds in favour of select forays into existing, and a few new equity positions. Time will tell whether this was a good decision. It certainly seems premature when considering the terrible Chinese PMIs released overnight Friday, though I think last week’s swoon has more to do with the spread of Covid-19 outside China. In any case, when Vix has a sniff at 50, I reckon that I have to do something. To evaluate whether to buy the dip a bit more thoroughly, I had a look at the put/call ratio on the S&P, which is now teasing short-term traders with the strongest buy-signal since the 2010 Flash Crash and the late summer panic in 2011.

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