Monday, February 23, 2009

Window for the bull case is closing soon

As you may know, I have been short term bullish since late November, with admittedly nothing to show for it. I have been quite cautious about it (being only 20% long at my most bullish and currently less than 10% long).

I had mentioned that my target was around S&P 944 to 1000 recently, but that if we broke 800 all bets were off. That was way probably way too optimistic. Something close to 844 may even be stretching it, and unfortunately, I did not follow my own advice (as I didn't get to 0% long on the recent break of 800).

I subscribe to services written by people much smarter than me. They provide me with insights that I can not obtain on my own and are time tested and accurate. My interpretation of technical services that I subscribe to, such as Lowry's and others are getting more and more ominous of pending moves to new lows. Jeffrey Cooper at is also speaking of upcoming cycles that point down as well. The esteemed Bob Hoye who has been on the money throughout this crisis is warning as well of upcoming danger, albeit in April or May.

My own readings tell me that the first chapter of the Currency Crisis (in late 2008) was not the last.

  • Overlooking the North American economy for a minute, there is pending disaster in countries such as Ireland and much of Eastern Europe including Russia. How can the EU deal with this stuff as it was not set up to do so?
  • $33 oil is causing havoc with the Middle East and other economies such as Venezuela. Dubai's economy is in big trouble.
  • The British, European and Japanese economies are falling as hard or harder than North America. The so-called (no offense intended) PIGS (Portugal, Italy, Greece and Spain) are particularly vulnerable.
  • Asian economies are generally very export driven and as such, are getting hammered by the global recession.
  • Most emerging countries have a lot of debt in the senior currencies (Yen, US dollar, Euros). As their currencies fall, this debt becomes more expensive, and in some cases, country defaults are a possibility.
Then you add all the obvious things such as the downward spiral of soaring unemployment and horrible banking systems in most countries to the mix and you get all the conditions for another ugly leg down.

Today we closed right near the November lows. These levels need to hold here right away. I had been expecting a retest (and failure) in March, but perhaps my timing was off. Alternately, perhaps we are now getting a retest and then we rally for a week or two and the bulls scream "successful retest" (maybe spiked with some government intervention, yet again?) before taking out these lows as the snow melts.

My target for the next downleg is S&P 600. Do we rally a little first and then get there or has the move already began? I am finding it very tough to decide, but it feels as if there is a level of despair here that may give rise to a fast and furious short term rally sometime this week.

Where am I planing on hiding? The US dollar & Japanese Yen and some selected shorts (if we get this rally). Even gold may sell off for a few months before resuming its upward journey.

The ultimate low in this bear market may be S&P 450 (roughly where the super bull of the mid 90s started from).

Disclosure: Long Yen, US dollars, Canadian cash, and a few longs

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