Massing in the wings

I get the feeling that there are a large number of investors massing in the wings, waiting to buy the next dip. Everyone seems to know that the fundamentals warrant more pain, but they do not believe (or do not want to believe) that the bull market may be over. The US economy will soldier on.

I have trouble with this version of events. I do not see how the unraveling of what was probably the greatest bubble in American history --yes, far greater than the tech bubble of the 1990s -- can not have serious negative implications for consumption, and therefore the economy. Toll Brothers' recent conference call highlighted how bad things really are, and the economy probably has not hit bottom. If no one wants to buy a house now, what about when people really start to lose their jobs?

Many people in the investment community have pointed out that investors probably overestimate the impact of Wall St. events on Main St. This is probably true. But they are also underestimating the impact of Main St. on Wall St.

The market appears to be rolling over and it will probably re-test the recent lows. As of now, my positions are showing losses so I will not be adding to them. However, the TSX remains below my upper risk level of 13,900 so I will also not be reducing my position. It is a case of sitting tight and waiting to be proved right (or wrong, as the case may be).

MARKET POSITION: SHORT (4 units)