Let’s cut to the chase this market is certainly trading like there is something greater afoot. What that is we have no idea, but the fact of the matter remains we continue to see high volume selloffs and a lack of any buying interest. Today’s action continues to reinforce our strategy and highlights cash is indeed king here. Why try and pick a bottom when this market is bound and determined to continue to push lower. Are we going to have a stock market crash like 1987? It is anyone’s guess, but our high cash levels along with a few select shorts we continue to be right in tune with this market. It is not our opinions it is simply studying price and sticking with our methodology.
Earlier today Business Insider posted these two links:
http://www.businessinsider.com/albert-edwards-if-im-right-the-us-stock-market-will-fall-75-2016-1
http://www.businessinsider.com/gerard-minack-sees-buying-opportunity-in-stocks-2016-1
We find it interesting these two guys are so sure their predictions are going to come true. Either of these could be true, but how likely? 75% crash, because 75% is a crash not 5% could happen. However, the probability we fall 75% is very slim to none. On the flip side, because of El Nino we are going to see higher output? Thus, we have a higher stock market? Let’s not forget the S&P 500 trades just under 17x TTM earnings. Not exactly cheap and will this “growth” be enough to support this multiple? Aside from all of this we have no idea what the Federal Reserve will do. Will they continue to raise rates? How about another round of QE? No one knows these answers and while many guess we are not in the business of gambling. We follow trends.
The possibility of a stock market crash grows each day we do have a rebound with overwhelming volume. Even the VIX shows a complacent market. We continue to see new lows while the VIX has yet to make a new high. This divergence certainly gives credence to a stock market crash. A repeat of an 8/24 type day is certainly in the cards. While we are not that short and miss out on a weak market we will have dry powder when this market turns. Remember, preserving capital is the name of the game. Who knows if the Federal Reserve will come out of the blue and announce a new round of QE.
We hope you are sitting pretty with a large cash position like we are and waiting patiently for our opportunity to strike.
