This Is a Selling Opportunity
I’m getting right to the point today. Sell stocks. Sit in cash.
The cracks in the credit markets bode poorly for the stock market. If credit conditions continue to tighten with spreads widening across the board, economic growth will be hampered. The wheels of the global economy run on the grease of credit and without it, the speed of growth will slow, it’s inevitable. I know this is an overly simplistic way of looking at the situation, but I think it’s the logic that is important here as opposed to the exact degree of decline in global growth. Investors are beginning to sniff this out just as they did as early as August 2007.
In other words, the stock market is doing today as it has done rather reliably in the past and is pointing to uncertain fundamentals six months out. Investors and traders do not like uncertainty and their response is to sell stocks, not to buy stocks. This uncertainty is why we’re looking at a selling opportunity currently.
The Megaphone Says It All
As I wrote last week, the recent structure forming in the S&P 500 appears to be shifting into a broadening top/bottom formation from a bear flag. While its measuring implication will be more forgiving than that of a bear flag on this chart, it’s a negative continuation pattern and it will take the index through 1,057 on a closing basis. I continue to believe that when this happens, when the S&P 500 closes below 1,057, the S&P 500 will trade down to 880 in short order. The mini-supports found at 1,036, 1,030, 995, and 980 are inconsequential, in my view.
(Please go to www.peaktheories.com to see this chart.)
Now while 880, or more precisely 881, 880, 883, and 880 made between July 7 and 10 of last year, offer some support from the current bear market low of 677, that little platform is unlikely to do little if the uncertainty we’ve been writing about increases.
“And 677? 677 is not support of anything. It’s a trap door in the floor.”
I remain mainly in cash with a small position in GLD and a few small short positions. I’ve started adding to one of the latter or SDS and will add more once it’s between $38 and $40. It trades chunky so it’s more likely to be above $40. I will add to GLD at $121 through $124. Simple, I know, but safe.
As always, thank you for taking the time to catch up on my thinking.
Disclosure: Long GLD and SDS