Rangebound

First, I think it necessary to address my last post, where I changed my mind about the direction of the market and decided that it was headed lower. In retrospect, this was not a terrible call (the market is currently about where it was that day), but again I was a bit impatient and rushed the trade. I previously had stated that I thought SPX would go to 1380, and I was waiting for some more optimism to return. Well, SPX reached 1396 on Feb. 1st, and again there were stories suggesting that a recession was not certain. Vix also retreated nicely. That would have been the best time to re-establish the short. C'est la vie...

On to today. The market seems to be slightly rangebound, awaiting direction. US equities were up yesterday on no real news, and European bourses are rallying strongly today on fumes. There is a possibility that this could turn into something bigger. Markets are down considerably over the past 2.5 months so a rally is not impossible. A recession still does not appear to have started yet in the US (my two criteria -- initial unemployment claims 4 week moving average above 350k and PMI below 50 -- have not yet been breached), allowing for some optimism that the bullet might be dodged. The Fed reduced rates by a silly 125 bps in one week.

But that does not seem to be the most likely scenario. A bear market rally may come soon, but I think there needs to be a real intermediate washout before it can be sustained. The Fed's inter-meeting cut prevented this from happening in January, but it needs to happen at some point. It is normal. It could happen when investors finally realise that a recession has started, and they can then comfort themselves by hoping that at least it will be short and shallow.

Gold still seems very overbought given conditions in bond markets. There is a good chance that it could fall sharply back to the $650-$700 range. But long-term I remain bullish so I will continue to hold my unit, hoping to add at better prices.

MARKET POSITION: EQUITIES - SHORT (1 unit); GOLD - LONG (11 units)