Want To Be Long? Gold and Treasuries Will Be your Tell

They sold stocks today with unbridled enthusiasm (couldn’t help the Greenspan reference). The DOW is down 12% in the last twelve days and the Russell got clipped for about 9% today. The S&P got tagged for 6.6% today and 11.2% in three days. Blah Blah blah, you were there I know. It was ugly.

Some obscure perma bear once said when you correct 20% you are in a bear market. No one knows who he was. We are in that territory now on some indices. I find that guideline beyond ridiculous, but if you are into that kind of thing, do what you wish with it. No one knows who that permabear was, although I think it was perhaps Nouriel Roubini’s evil twin who resides in a basement in Queens.

This is a great time to think about who you listen to or go to for advice. The brilliant pundits scared the bejeezus out of you recently. They said the bond market would crash as a result of the downgrade. They said you would be choked with all types of new personal debt challenges because of imminent higher rates. Well lo and behold, the 10 year treasury has gone from over 3% to 2.34% in just the last week. Fear brought that yield down as investors flocked to safety. The plain vanilla managers never think outside the box, so they went to their “what to do if there is a downgrade” playbook. They are usually horrible. Many were very good on this call.

I think the world is falling apart right now to be truthful. You all know my reasons why. The President called the media and let them know he was going to speak at 1Pm, then they pushed it to 1:30, then he sauntered in late for that deadline. The market was in disbelief, and sold through all of this. He then talked about raising taxes and the Navy Seals. The market was shocked. The market feels that no one is watching the ranch. As I said in my last post we are on our own and these people will not save us. And I mean both sides of that idiotic aisle. This is a true crisis of confidence and the market is getting punished because of it.

The market will figure this out without these people as it begins to look forward. Right now thing are horrible, but this will pass, no doubt in my mind, it always does, and I’ve been around the block a time or two.

Right now, as I write, Asia is getting pummeled like a baby seal. Europe will probably open lower later and our S&P futures are down 12 handles, the DOW is down about 115 points.

Watch gold and watch treasury yields as this has been where fear goes to hide. If gold starts to get sold and if yield rises on treasuries, the market may take that as signal to get very long. The rally will be epic. This may not happen tomorrow, but these will be your “tells”. You will never catch the bottom but this is a great dynamic to watch.

We’ve been about 100% cash for about a week now and we are waiting to get long soon, although there will be some more short term pain first. With one exception, I haven’t put a long on since August 1. Will the rally last? Maybe a few days, maybe a week. I will still be looking to get short any rally. The rally will be technical in nature and won’t be driven by anything organically positive in my view, so those rallies must be sold and shorted. But that’s just me.

Good Luck and don’t catch knives.

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