More damage needed?

Looks like my call on a short-term bottom was a little pre-mature. We continue to witness a very large reduction in risk/leverage. Asian markets fell sharply again last night. Nikkei closed below its March low, which is bearish. Europe down - FTSE is approaching March lows, though DAX remains far above. The USD is strengthening against the Euro and C$. The Yen is up sharply the past few days while the NZD is down, indicating that the global carry-trade is unwinding.

It's tough to make a short-term call here. The declines over the past few days were large, and a technical bounce would be normal. At the same time, the negative news is starting to become overwhelming. The Bulls' rhetoric seems to be waning. The mainstream media is starting to discuss the possibility of a recession. Wal-Mart (the US and world's #1 retailer) went out of its way yesterday to highlight the difficult economic environment.

There has also been a lot of talk about the Aug. 15 deadline for redemption requests at hedge funds (given a 45 days to quarter-end notice period). Many investors at losing funds are likely to throw in the towel and ask for their money back. This would prompt more de-leveraging / selling. There has been a massive move into quantitative trading / investing over the past few years. For a while, it must have seemed like free money. But as with all great things in the markets, it cannot last. Goldman is unlikely to support ALL of its hedge funds.

Medium-term trend remains down based on poor economic outlook and negative sentiment / technicals.

MARKET POSITION: SHORT (2 units)