Wake the heck up.
There is a growing acceptance among the investment industry punditocracy that we may well experience a 10% drop in the U.S. stock market. Thanks for conceding that as the SPX closes down 10% from its all time peak today. Some of these brilliant folks are hedging by suggesting we may even see a 15% drop — but that it means nothing. They’re selling this view that a 15% drop would be healthy as it would shake out the “weak hands”. I cannot pound the table any harder as I write this: this dip is a wake up call and should not be considered on its own/in isolation. It is the opening salvo in a series of deeper drops in what will be an historic crash.
If central banks do nothing new we’ll experience the largest and fastest stock market crash since 1929 this year. Why would central banks do nothing? Because they’re out of ammo / their remaining tools have become impotent. Ex-Dallas Fed Prez Fisher said so this week. My proprietary algos back up this view with quantifiable evidence over the past 17 years.
I fully expect the Fed to begin backing away from interest rate hikes at this month’s FOMC meeting and for the ECB to expand its QE program by whatever it thinks it needs to in order to beat expectations (a 25B euro/month expansion?). I don’t know when these sugar bombs will be dropped, so I remain vigilant. At least one of these two sugar bombs will need to be dropped by mid February or things will begin getting quite scary.
I remain in a very large tactical SPX short (this week was awesome!) but will exit it next week or the week after (based upon what the Greedometer and mini Greedometer readings and their internals looks like). I then will “buy this dip”. Ahem. I’ll rent that dip and go long for roughly 2 weeks. (this estimate will get tightened in the coming week but I won’t post it publicly since I have newsletter subscribers to consider). Then I’ll get monumentally short the SPX. This plan will get changed if there is a new sugar bomb from any of the top four central banks – because that action will impact the input parameters to my proprietary algos. For the past 17 years we have not lived in a world where static risk models and trading systems with static price targets make sense –>> fodder for algo-bots. Forecasts must be adapted as central banks take action. Understand and accept that or pay a heavy price.
Wake the heck up. Please.