So where are we heading into yet another Fed week? We find the Dollar on the decline and some of the risk on trying to recover. Oddly enough we also find the equity markets dropping along with the Greenback. When that happens odds are high we are in a trading range type market as they usually work inverse to each other. We’ll probably be all over the map again.
Overall, I think we’ve put in an important high last month. A high like that should spawn a multi-week to multi-month correction. We are already in for a month. I believe the fact that the intraday crash was totally retraced meant that it took some of the bears out of the market. They gave up too easily. On the flip side if there was margin selling that means they took some of the bulls out as well. I don’t see this peak as a long term top. However, nothing is stopping this market from continuing the kind of complex grind we’ve experienced lately. I do not think you’ll see the kind of whiplash we saw in October and November with the Dow up 300 one day, down 300 the next. 150 up and down is quite enough, thank you. We’ve become accustomed to the kind of bears we had from 07-09 and back to 2000-02 where the drop was very steady. There’s not a lot of people left in the market that remember the 70’s. That market was characterized as a rolling, complex grind that took a lot of time to complete as opposed to wiping everyone out in one fell swoop. The difference between what we are used to is a sharp drop that spills blood in the streets.
Fear runs rampant and the bear exhausts itself. On the other hand, grinding corrections build fear slowly and tend to give back some of the fear on the good days. Consequently, it takes forever to get the VIX back into the 30’s, a level we really need to get the bull rolling again. Instead we have a market that wastes a lot of time and the net result is it doesn’t create fear as much as it lulls everyone to indifference. By the time this market starts going back up again many people are going to get frustrated enough to consider that it’s not going up anytime soon. But if it were to do it now (go up to a new high) then we’d have to start the process all over again. What I’ve learned is they don’t ring a bell at the top; Apple is already down 10% so we are in midstream and we should continue to roll and grind along. For the President of the United States, his hopes are best served by this thing ending at least 30 days before the election.