THE LANDSCAPE SUPPORTING THE MARKET SHIFTED THIS PAST WEEK. NOW WHAT?
The easiest way to spot a shift in the market is to look at the landscape that supports it and watch that landscape for changes. The more you try to make sense of the shift according to various fundamental paradigms and traditionalist thinking, the more you will draw blanks. You have to completely tune that shit out of your mind and look at all the various factors as a single functioning entity. When one or two components of that entity begin veering off in odd directions, you can bet that the entity will become agitated, even if it doesn't respond to the changes right away.
And that is what we had this week, the entity that is the market witnessed numerous components within its structure begin veering off in directions that have shifted the landscape for the first time in 2012. Our job as investors is to attempt to determine what overall effect this shift will have on the entity and whether there is an opportunity to profit or at a very minimum, avoid loss, as a result.
I outlined some of the shifts I was witnessing on Wednesday. As the week came to a close, I saw further signs that a shift has taken place that will likely result in change of character for the markets over the next few months.
Suddenly, the Euro has weakened dramatically. Of course, the US Dollar has reversed course and is sitting right up against a major technical level on the US Dollar Index. The uptrend in both gold and silver has been broken. The reaction to the break on Thursday and Friday were not promising. The commodity sector looks increasingly weak as a result of the aforementioned facts. The Dow Transports look ready to breakdown. The Russell 2000 has already broken down. And generational trajectory points of enormous stature and importance are converging across major market averages. None of these facts changed into Friday's close.
It translates into a market that is going to begin becoming a lot more deceptive than it has been since January. It translates into increased volatility and opportunity for gains from both sides of the coin instead of simply being long. It translates into a sideways range developing into April and May.
What it means for you as an investor is that you may not want to be chasing the hottest growth names at this particular juncture. You don't want to be putting large amounts of cash to work in equities currently unless they are of the conservative variety. Hold onto whatever cash you have for better opportunities in the months ahead.
I also wouldn't be jumping the gun to liquidate your long positions, hedge or get short. We are in a bull market. If you find yourself being overly paranoid of every pullback in a bull market, odds are that you will eventually outsmart yourself and miss large chunks of the move. Not to mention, turn yourself into an anxiety ridden mess that curses at old ladies and jumps at every shadow. You have to be willing to deal with the periods of chop that develop during bull markets.
What we have now is simply a very preliminary warning. It is a warning that is telling investors to slow your roll. Chill out. Take your eyes off of the flashing green and red numbers for a little while and go look at a tree. Your account balance may thank you for it.
