Wednesday, April 04, 2012

A modest pause, start of a decent correction, or... the end?

Of course, nobody has a clue what the modestly sharp decline of the stock market really means. Is it simply a modest pause before moving higher? That kind of thing happens quite frequently. Or maybe is it the start of a nice, sharp, decent correction, especially since market action in recent weeks has been somewhat a stop and go semi-pause anyway, again before moving higher? The kind that is overdue? Or, is this "the end", a harbinger of an impending bear market and indication of the long-rumored "recession that never quite happens"? We had a nice bump up in the economy since the summer, but the economy almost never moves in a straight line. A modest to moderate pause in the economy is quite believable. Not to mention the fact that the Economic Cycle Research Institute (ECRI) is still forecasting that we will be tipping into recession by the middle of this year, sometime in the next 90 days.
 
All of that said, hedge funds and proprietary trading desks are in control since they control the vast bulk of "hot money" that defines most market moves these days. The $64 billion question is whether they are "just messing with us", or about to pull the plug after the nice rally and switch to a "risk off" bias heading into the summer, the election season, and dramatic federal budget uncertainty in the new year as the "sequester" hits on January 1, 2013.
 
It is still a little early for the "Sell in May and go away" crowd to take action, but not by much and I would note that traditionally there is another crowd that starts selling in February, and all the pros want to get the jump on any big sell-off.
 
The mania over Apple is just another indicator that the market is getting just a little too "frothy" and "toppy." That said, those qualities are never a reliable indicator of the precise timing of any major selloff.
 
My hunch at this point is that the decline is simply another pause before the hot money crowd manipulates the market higher. My other hunch is that these manipulations are not primarily about giving the hot money crowd opportunities to exit and take their profits. It is really no different than the market manipulations of the 1920's, albeit with "rules" and regulations that simply make it a bit more challenging and interesting.
 
In any case, I am still sitting on the cash for my 2011 retirement contributions. My default plan is to invest 25% on a 10% drop in the market. Still not sure what to invest in, with a 2025 target date fund as my default, but Verizon and Priceline as possibilities, among others.

-- Jack Krupansky

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