Let's recap, shall we?

A brief review of the facts:

1. Most forward-looking indicators (e.g. PMI, durable goods, etc) are showing that the economy has slowed dramatically over the past 2 months
2. The housing situation, while difficult to say whether it has become worse, has certainly not become any better.
3. The labour market is weak. Payroll numbers have help up OK (though their accuracy is debateable) but the 4 week MA of initial jobless claims continues to increase, and is approaching worrisome levels. A rise past 350k would be a strong signal that a recession is underway.
4. Consumer confidence is plummeting, particularly future expectations. Surveys show that a large percentage of Americans believe the economy is already in a recession.
5. Energy prices remain punatively high, despite the retreat from recent highs
6. Despite 100 bps of cuts from the Fed (plus BoC and BoE cuts), LIBOR remains high, the credit markets are glued up, and the stock market is 5% below it highs (as I write this SPX is 1490).

Is this a pretty picture? One that points towards a return to healthy growth and profits next year? I think not. So I must continue to stay short, wait and be patient. The market will come over eventually.

Speaking of patience, once again I rushed the trade last week to increase my short position. Although I wanted to increase around 1500, and saw that as a reasonable place to enter, I jumped the gun and made the trade before the market was able to get there. It was not an outright stupid move (I still believe that next year selling at 1465 will look pretty smart) but I could have got much better execution if I had been patient.

With less than 3 weeks left in the year, it's difficult to foresee how things will develop. It is possible we will get the usual Santa Claus rally and could even see SPX back close to its high. But if that were to happen, I would expect January to be pretty ugly.

MARKET POSITION: EQUITIES - SHORT (9 units); GOLD - LONG (1 unit)

Market offers more opportunities

The market continues to offer opportunities to increase my short position. After a hard and fast rally last week, the market seems to be weakening again. No surprise, given the events in the credit markets these days. A growing number of people are starting to say that a recession may be just around the corner. Housing, employment, consumer confidence, profits are all weakening. And the market is only 6% off its highs! A testament to human optimism and trend following.

I think by the middle of next year, now will be seen as an incredible opportunity to go short. Last week's oversold condition has been rectified, and the market is ready to start declining again. So I am taking this opportunity to increase my short position by two more units. I was hoping to be able to do it closer to 1500 on the SPX, but I am not sure we are going to get there with all the negativity these days.

MARKET POSITION: EQUITIES - SHORT (9 units); GOLD - LONG (1 unit)