It happened just as I figured. The traders hammered the stocks in which they figured would uncover the most stops, and sure enough, prices slid off. –Jesse Livermore
This is the hardest time for traders. You may have the devil (Mr. Bear) on your left shoulder and an angel (Mr. Bull) on your right shoulder. We are conflicted because stocks that we loved may be down as much as 50% and our trader DNA says buy. The other emotion is fear and we are programmed to sell, short, or stay put because it happened so fast and you are trapped and still way to long. The synapses in your mind are lighting up like a pinball arcade. Your id, ego and superego are twisted and your cerebellum feels like it could explode at any moment, especially if you were caught leaning long and still are very long.
We may very well rally higher next week (or much lower). I don’t mean to be vague, but there is no black and white as the world is layered in gray matter right now with no specificity. The giant wet blanket continues to be Greece and Europe, however when you throw in double dip talk, which is growing deeper roots by the day, and the reality of a global slow down, investors just shoot first and ask question later. Everything goes down because when they raid the cat house they also take the piano player. European leaders look like drunken fools at a line dance. It’s hard to be anything but bearish if not totally panicked about Europe, especially when you read quotes like this:
“David Cameron: Euro Debt ‘Threatens World Stability.'”
“World Bank’s Zoellick: World In ‘Danger Zone.'”
What to do? Gold ($GLD) was the fear trade and it was the place where fear went to hide. That bubble is bursting and gold was taken to the wood chipper . Treasuries have been a great buy as rates have imploded. $TLT has just exploded higher as yield deflates and price takes off. I still think gold can go higher, but it needed a rest.
The greenback is finally bullish again, but not because of anything organically bullish about the U.S., but because the Euro $EUO is imploding. King dollar should be king for the right reasons, right now it’s just the best house in a horrible neighborhood. Don’t take the bait.
“The Bernank” may have some twisted form of QE up his ying yang after Thursday’s implosion, but I really wonder, if implemented, will it fall on deaf ears and just magnify an already bad situation. Also, if you think bailouts are over think again, as we are a good chunk of the IMF , so when you find out the Bank of Cypus is getting an injection over your Cheerios one morning, you can pat yourself on the back for being a good guy.
The next couple of weeks should be wild and to paraphrase Pacino, “keep your friends close and your short ETF’s closer”