Wow! What did you guys do when I was gone? I left work about 2:30 and everything looked good. I ran some errands and found out later the S&P tanked in the last 15-minutes or so of trading.
During the trading day, when it didn’t look like the S&P was going to get above the trend line (see my last blog), I went short at around 1315 on the S&P. I’m using QID (2xshort the Nas100) with about 10% of the trading portfolio. There was nothing in my analysis that dictated the short play; I just felt that if we couldn’t get above the trend line, the most likely course was down. Oh, there was one thing about today…the volume was, as one trader called it “pitiful” around lunch time. We finished with an absolutely anemic 2-1/2 billion shares traded in the S&P 500. The 20-day moving average is 4.2 billion.
I’ll add more to the shorts tomorrow if I don’t have to chase it down. We don’t want too low an entry point. I still think we are likely to successfully test the 16 March 1257 recent low, and bounce back from there, but as I’ve said too often, that is just a guess.
The fall back to 1256 may be straight down based on previous corrections; but there hasn’t been much in this correction to remind us of previous ones. We are still 10% above the 200-day moving average, and a 10% drop from here is still a very real possibility. We could also bounce up and break the down trend – but that is looking unlikely at this point.
Now, here is what today’s blog title refers to …
I ran in to an old friend I hadn’t seen in a while. He is an investment professional and manages money for a living – I respect his opinion. He has completely changed his investment style and is now pursuing a conservative strategy for all of his clients.
He had a sobering prediction. He said, “When QE2 ends; the market is done for a long time.” QE2 is the Fed’s policy of buying treasuries to keep interest rates low and force the stock market up. Yes, Ben Bernanke has stated exactly that. Part of the Fed model is that the wealth effect in the stock market will aid GDP. (It does, but only in a very small way – another discussion.) Now I have considered that the end of QE2 may put an end to the uptrend, but it is more persuasive and disconcerting when I hear it from a Pro. So if traders are expecting QE2 to end this summer, we may be seeing the first rumblings soon…maybe now. The market looks out about 6-months.
I am not a doomsayer, but I do expect a drop in the range of 25-50% to start before we get out of this bear market. Based on past history, that drop could be expected to start anytime. (See the Page comparing the Bear Market of 1966-1982 to this one on this website.) Maybe we’ll get to the old highs (around 1550) first, but there are no guarantees.
The Navigate the Stock Market analysis is neutral today. Most indicators improved - but not enough to call a Buy. Further down moves will not improve the NTSM analysis unless they are very small and the VIX improves. VIX fell 8-1/2% today – not a good sign.
The NTSM analysis is still HOLD
I am conservatively positioned with only 30% invested in stocks and about 10% of the trading portfolio in a 2xshort position.
