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Trading the Trend

Trading the trend plays against common sense.  The trend is bullish and certainly sides with the VIX bullish sentiment - Put/Call ratios at .93 suggest some caution.  My concern, however, lies in the suspect fundamental data that everyone is pointing out to confirm a recovery.  Let's look at the issues that took us into the Great Recession.

Financial weakness from toxic assets resulting from bad mortgage loans - the subprime scam.  Institutions too big too fail received tax payer money to bolster their fundamentals but local and regional banks continue to fall - 27 year to date.  The larger institutions are certainly not "out of the woods", but since government has a stake they are more likely to weather bad conditions.  Fannie Mae and Freddie Mac continue to lose billions at the tax payer expense while the issues that got us into the mess, seem to be continuing.

Housing remains weak, although a weak bottom has found some footing.  Government help may be offering some support.

Consumer Confidence lags market confidence based on unemployment data.  Unemployment at 9.7% is nothing to write "home to Mom about".  Initial claims continue in the upper 400k and continuing claims are near 5 million.  Real unemployment is close to 17% and 30 States have increasing unemployment data.  California, in particular has 8 counties with an unemployment rate of over 20%, yet Senator Reid delighted in the "good news" that 36K lost jobs, according to last weeks non-farm payroll data.

States are having to raise fees (taxes) and taxes to find ways to generate revenue since income taxes are down as well sales taxes.  It's simple to understand, no money, no buying.  Government can't find a program they want to cut so taxing the remaining employed as well as unemployed is their solution.  Deficits and debt are at unsustainable levels, yet Government increased the US debt ceiling to over 14 trillion and continues to spend, citing that deficit spending is the way to economic footing.  Common sense wonders how the math works.

China is now concerned about inflation and will soon be raising rates to slow and contain inflationary pressures.  Europe is in deep debt trouble with many other sovereign states in a similar position.  Could it be that since we're all up the river without a paddle, that buying makes sense?

Bottom line, the markets continue to look for reasons to buy and selling is not part of the current vocabulary.  Fundamentals are taking a back seat to, "things aren't as bad as they could be" or the markets are fooling themselves into believing that things are good and the more money we spend the sooner we'll recover.  That's spending money that doesn't exist.

Summary:  The trend is moving upward, with the DJIA and SPX testing some resistance levels and lagging behind the bullish Nasdaq.  Stay away from bearish strategies, but remain hedged and make sure you have cash on the side as a "just in case" scenario.

CTM trades:  No new trades or adjustments.



Disclosure: No positions