Used 1st IFT of Feb to shift temporarily (I hope) into 100% G. This was COB Feb 4th, exiting on a near1% up day.
It was not based on fear, panic or utter capitulation. It was based on a combination of strategy/tactics described below.
All thru the exuberance of the past year,and the hot bull market of the past 5 years, it was widely acknowledged that this was "Big Bens" market. His invisible QE hand providing instant support at nearly every downturn. Questions arose if we were developing a "QE Bubble Market", with many on this site echoing that sentiment. That convinced me that I would never allow myself to be caught in the big downturn that would surely occur when the Fed/QE bubble bursts.
Question is...WHEN would this be? Would it be when QE goes to zero? Very unlikely; since the market is a forward looking indicator...instead, it is much more likely that the bubble would begin to burst when a steady unwinding would be well underway....with the "zero QE" date looming 6 months in the future. If so, then the "future" is NOW. Unwinding from 85 Bil to 65 Bil in 2 months....a rate of 10 Billion/month...the Fed has sent a clear message - barring a catastrophic economic event (NOT a 10% stock pullback), they're going to continue to unwind QE by 10 Bil/month...and at that rate in 3 months (90 days) QE will be 35 Billion (40% of original 85 Bil)...and then 2 months later QE would be at a negligible 15 Bil (only 20% of original QE). At that point, QE is so small its basically zero already. The market would likely start correcting well before this...and made me start thinking"is this what we're seeing now?
JTH had a great post of what happens when stocks in January drop below the previous months (Dec) low. Basically, whatever the fall is at that point in January (-3%...-7%, whatever) there is...on average...an additional 11% of continued downfall in the short term.
http://www.tsptalk.com/mb/members-account-talk/6089-jths-account-talk-4.html#post441158
Is this possible? Can the market really go down that far? Not usually,unless a longer term "bubble" is burst (Tech Bubble 2000...Real Estate Bubble 2008...and just maybe...QE Bubble 2014???). Not to mention Emerging Market Crisis AND China Shadow Bank Crisis. So far, we've only had roughly a 5% downturn since Jan 1st. Looking at Sentiment Survey and just judging by the posts of many here, there is only a little "fear" so far. Looking at the "Cycle of Market Emotions" below, I'd say we're only in and around the "Denial" to "Fear" level so far. The levels of "Panic" "Despondency" and "Capitulation" are just not there yet...and that means there is more room for sellers and shorts to roam....since at this time there is no "Big Ben" riding to the rescue with his QE lasso.
However,a look at the charts does show what normally resembles a good buy in opportunity...a 2-3% drop, followed by a dead cat bounce followed by a lower low. Normally it would be a smart place to start buying right around now (below).
But at this point, we are so close to the 200 day EMA, that it might end up being a self fulfilling prophecy.
So I cut my losses, in order to see a lower low closer to the 200 day EMA. This Fridays labor report will be critical. This time, bad news won't be good news,unless its catastrophically bad enough to warrant a reversal in QE. And I don't think it will be that bad. Actually with State and Local Govt's now hiring again, we could see a slightly better than expected number.
So I'm guessing (betting) that we will see a lower low closer to the 200 Day EMA...near 1700 on the S&P sometime in the next 5-8 trading days.
Am also on the lookout for better news/numbers (starting with Fridays Jobs Report) that could trigger a buyback reversal.
