My contention has been all along that any intervention from the Fed or any government sponsored plan may evoke feelings of market euphoria, which will be short lived since the underlying issues of the Subprime/housing credit bubble are not are addressed and certainly not resolved. There are countless investment banks in the U.S. and worldwide that are bogged down with eventually having to write down more assets and clean up their balance sheets.
Until that happens, the markets are bound to remain in a trading range, with violent moves up and down. Given these underlying issues, I believe that the eventual breakout will occur to the downside. Once that direction has been confirmed, we will inch our way into bear market funds.
Yesterday’s retreat pushed our Trend Tracking Indexes (TTIs) further into bear territory with the domestic TTI being positioned below its long-term trend line by -1.22% while the international one sits below it by -10.30%.
There seems to have been a commodity shakeout yesterday (unwinding of large positions/increased margin reqirements) possibly because of the lofty levels many had reached. The volatility had picked up greatly last Monday which prompted me to liquidate our holding in the Commodity Index (DJP). Gold retreated as well, which was to be expected, but it did not reach our preset sell stop point.
My suggestion to remain in cash still holds. We currently only have a small exposure to gold and Swiss Francs.