Yesterday we finally got the break I’ve been looking for. Markets had been levitating on declining momentum and borderline extreme optimism. Keep in mind that market advances are fueled by constant wall of worry along with rising earnings expectations.
On the rising wall of worry, Rydex mutual fund investors had positioned themselves as extremely bullish and depleted their cash reserves which would have fueled the rally.
In addition Bank of America/Merrill Lynch and Goldman Sachs have reduced their 1q GDP expectations from 2% to 1.8%, implying slower growth.
While the seasons come and go….even here at 7000 feet with six months of Winter, Greece appears never ending.
And lastly, tensions between US and Iran. If war does break out it could potentially introduce a new Black Swan event in the form of a stupendous spike in oil. Such predictions for a spike in oil are very likely ludicrous but could $200 oil be possible?
Regardless, investment conditions for the time being are causing me to be very cautious and hedged (to protect existing holdings and first quarter gains). We’ll be patient and wait for the fat pitch before taking any swings. I’d like to see the pendulum of investor emotions to swing back to extremely cautious which would imply that many of the potential negatives would be factored into stock prices, which they certainly are not at the moment.
Long TWM
