Market Outlook: Why I'm Pulling Back

I continue to hedge down my positions and am now primarily in cash, with some long exposure remaining. Over the next few days, if the market plays out the way I think it will, I will get net flat or perhaps even short. If I am wrong, then I will reverse my positions and become more aggressive. I have not sold any of my stocks bar one, and expect to add to positions on a downdraft.

This is just a trade, and I might change my mind Tuesday. I do not believe this is the beginning of a new leg down to lower lows. To hit lower lows, another cataclysmic event must occur, probably even bigger than what has already happened, an event I believe is unlikely. (There is one thing that worries me immensely, which I will address over the next few days.) I think the economy is repairing itself, and economic growth will surprise to the upside in the not too distant future.

But we have come far, fast, and the risk that the market takes a breather and retraces some of the gains is high, in my opinion.

Comments

[romorris:]

But your little song-n-dance to weather a little pullback threatens to make you miss the big move north. Bad risk.

Apr 28 02:08 AM

[Roger Knights:]

Good call-Dow futures are (at this moment) 130 points below Monday's close.

Apr 28 05:37 AM

[Old Trader:]

Barry Ritzholz was on CNN radio today, during their noon business hour, and was queried about the whole stress test thing, and the fact that so far, only Citi and BofA will need to raise additional capital.

He opined that quite a few more banks are in the same boat, but to avoid shocking the markets, that news would be dribbled out over a few days/weeks....One name tomorrow...maybe a couple more, 3 days later, etc....

Is that the kind of cataclysmic event the author is talking about? A sizeable majority of the 19 largest banks being "capital deficient"?

Apr 28 05:50 PM

[DerekNJND:]

yea the stress tests were absolutely cataclysmic. a week of banks gaining 5-10% per day, and rallying to 2009 highs. AWFUL!!

to the author: I agree, you see this in every day's market--even the down days--simply more buyers than sellers when the dust settles. No matter how low sellers try to batter the market, or how much negative junk the media pumps into our lives, there's always large players standing around with billions to flood the market at the end of one-day selloffs. Thats why we have this technically sound rally, with an intact trendline and major indices nearing their 200 day MAs, with a chance to catapult this market into levels only the most optimistic professionals predicted pre-march.

As far as waiting for this "correction" while you dont say how low you think it'll go, I've been asking everyone this question: The market was just in a 2 week bull flag, which the spike Friday may have pushed it out of. Aside from resistance at the 200 day MA, and the closing S&P highs in early May around 930, what else leads you to predict this pullback? Isnt that what this bull flag just was? Thats what happens in bull markets--pullbacks just arent as bad as everyone hopes for :) Believe it or not, I think S&P 870 was about as good as it gets for those who haven't gotten in yet.

Maybe you'll hold out, but fund managers and other institutional dollars won't be. thats really what I care about :) They can't afford to miss the next 1,000 points, and luckily for those of us already well exposed to equities, their dilema is our gain, as everyone will realize, "wow, that WAS the correction" and the influx of funds will push the S&P over the 200 day MA and into the "secondary with a lot of room to run" lol. Target price could be 1050 for the S&P.


Again, not saying there will or wont be some huge correction--I have hedged with some ETFs and put positions, but you gotta eventually stop waiting around for something that has yet to show any signs of occurring and stop fighting the trend. Against the trend is not the side to be on in a powerful stock market.

Jun 01 04:40 AM