The market took away all of the gains from yesterday, the S&P closing down 4.6% and the NASDAQ down 4.0%. Europe was front and center once again today as many French banks were under pressure similar to the U.S. banks back in 2008. The instability in the market makes this a very difficult environment to invest in to say the least.
Although we are not calling a bottom, as that is a futile game, we did remove our hedge in the market and brought our long exposure back to 60% long with 40% cash. Judging by the finish of the day, it is highly likely that tomorrow will have an ugly start. It is still possible that the market has an all-out crash but at these levels we feel the risk reward is starting to tilt toward the upside as a significant amount of the economic slowdown has been discounted. The problem remains that we have not discounted a crash in the U.S. Dollar or a breakup of the Eurozone. The worst case would be both events occurring simultaneously.
The bottom-line is that it will take time for the market to work out its equilibrium and lower the volatility. We like the risk reward although we will not dig our feet in if it becomes apparent that we are wrong. Discipline and exiting trades is the key to investment success over the long run. We intend to follow this course with our moves in the coming days.