How Much New Risk Do We Want to be Adding?

$SPX

The bull thesis is still very much intact for me, but I’m at a point in this cycle where I’m managing existing positions (via covered call writes, or sales if I’m not convicted on the longer term trend) more so than initiating new positions.

The chart below is a graphical representation of the z-score of S&P returns on a rolling 100 day basis going back to pre-GFC. We’re currently north of 1.5 on this measure, something infrequent and transitory (just under 3% in the sample).

We’ve achieved meaningful gains in a short period of time. Particularly if you’re a trader or shorter-term focused, this is probably a good stage to manage risk and prepare for the next opportunity the market opens up, as the secular market trend hasn’t shifted yet.