I’m now the most negative on the markets I’ve been since February.  The “Gap Trade” I’ve been describing is happening exactly as it should.  Everyone lately is now focused on bad economic data that happens to be lagging.  Therefore, profits are being taken from the areas that ran up the most.  That would be financials, emerging markets, technology, commodities, etc.  I’m continuing to see better data when we look through the front windshield instead of the back.  So, why am I not buying?

You have to respect the technicals even though the fundamentals are improving.  Therefore, I’ve been selling for a few weeks and locking in some profits.  In addition, I’ve established some short positions.  I do expect some mediocre rallies but I think for the time being those are opportunities to sell into.  The technicals continue to weaken and the sellers are getting restless and now starting to put their orders in.  This is where the flexibility you and I have that I wrote about a few weeks ago comes in handy.  Fund managers right now are getting big inflows of cash as the “return chasers” are piling in.  That means that the fund manager can’t take profits.  He/She actually has to buy at the high prices and come on television and give his “top 5 picks.”  My top 5 picks right now are cash, cash, cash, cash, and oh yeah, cash.

My plan is to let this selloff run its course however long and however deep it will be.  When it’s exhausted, I’ll look to get into the very things I recently sold.  The economy will surprise investors over the next 30-90 days.  That will once again get stock prices headed in a northern direction.


2 Responses to “Caution”

  1. 1 Philip Vitale July 7, 2009 at 3:55 pm


    I am a big fan of yours, you are very insightful to a lot of knowledge. I have been listening to your podcast for quite a while now and I would just appreciate any advice that you can give me. As of now I am a full-time trader and I went to OTA for education. I have always been extremely passionate about trading since I was 18. I have been trading for a short time now and I am struggling a little. Do you any advise for me? Thank you very much for your time.

    Philip Vitale

    • 2 keggerss July 13, 2009 at 9:42 am

      The main advice I would have is to keep educating yourself and realize that paper trading is not the same as doing it for real. Until you really get in there and make mistakes, you haven’t really learned anything.

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