After a major market pullback the natural reaction might be to just hang in their for the follow up rally, but not so fast. Market bottoms are a process not a point in time. What I mean is that we may have made a bottom in equities on Monday but the odds are very high that we’re going to have a period of at least a few months to finally exhaust all the sellers. Markets will likely be whipped around like a puppy’s chew toy and I’d rather keep volatility to a minimum.
In the meantime scenes we’re likely to see:
Failure of a major European bank – Its not like they’re going to give a heads up notice. When you start banning short selling you know you’re in a losing battle.
2012 US earnings estimates: They haven’t budged at all. They stand now at $111 for 2012. Despite a plethora of weak economic stats the numbers haven’t moved down at all. They must come down to reality before they can be trusted. The downward revision process will likely be painful if you’re heavily invested in equities.
Commencement of QE3: So far the QE process has been a complete bust. But thats about the only arrow the Fed has in its quiver to aid the economy and its a loser……unless you own precious metals and then its manna from heaven.
While risk at the moment may not be very large, the prospects for Intermediate term gains in equities isn’t rosy either. This is not the time to be excessively bullish or bearish for equities. In the meantime we have lots of cash on hand and in many accounts the long equities are balanced by Gold, Silver, Swiss Franc’s and the SDS.
Gold and Swiss Franc’s still too hot for new money and needs to cool off. Silver is frustrating but could rally.
Happy Friday
Long SDS, GLD, SLV, FXF