Wednesday, December 3, 2008

Going Lower

As Dennis Gartman often notes, a good trader "Trades like a mercenary guerrilla. We must fight on the winning side and be willing to change sides readily when one side has gained the upper hand." Dogma is a dangerous attitude to front in markets such as these.

With that said, I believe as traders we need to move even further out on the continuum of risk and frankly those that have been dogmatic (towards the downside) have been consistently rewarded. That paradigm will change for sure, but guessing that inflection point will be tremendously difficult. Based on my proprietary research, I believe the odds are growing that between now and the end of January the market will move another leg down, perhaps into the mid 600's on the S&P.
Some things I am looking at:

- The damage sustained to the BKX;

- The expanding gold/silver ratio;

- Weakness in the Euro, strength in the Dollar;

The velocity of these moves, both up and down, have sustained the dominant trend lower. Until the market can break out to the upside and consolidate in a narrow range, there will be no traction. These markets are hollow right now. Just look at SAP Capital or Picken's hedge fund. They are almost completely in cash and waiting. Perhaps you should too!

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