Well, the NDX (Nasdaq 100) did break its trendline and it broke it in a big way. That I was right about (see entry from a few days ago). I was a little off on the timing though. I was pretty sure that the NDX would loaf along until the Dow Industrials set a new high. No new high on DJX and it doesn’t look like it will get there until summer (if then).
It seems like the market didn’t like Uncle Ben’s cooking with his fed statement and had a temper tantrum that made even me look twice.The market finally started paying attention to the warning signs all around us:
-Current account deficit at highest levels ever
-Trade deficit at highest levels ever
-Gold at 25 year highs
-Silver at 20 year highs
-Industrial metals at all-time highs for copper, moly, and zinc
-Oil near record levels
-Stagnant wage rates
There’s an old saying in the market, "It doesn’t matter until it matters." You’ll see people talk about high oil prices on TV saying how resilient the US consumer is and will keep buying stuff even with high oil prices. Well, that’s a warning sign folks. Inflation is here. I don’t care what the CPI reports say. We’ve got inflation. The man on the street knows more than the federal government. This is what seriously spookd the market — the possibility that the fed might stop raising rates before they need to. For months we’ve been hearing that the Fed is going to overshoot and hurt the economy blah blah blah. Well the converse of that is about a 100 times worse. If we still have inflation and the Fed stops too soon…..oh it won’t be pretty. It’s that whole ounce of prevention versus a pound of cure thing. Folks, there’s a reason why the Fed always overshoots. They want to be sure there’s no inflation. It’s that simple!
So when Uncle Ben hinted that the Fed might pause, all of those things from above started to matter. The Nasdaq 100 is now negative on the year. The trend is down and I’m positioned appropriately (long June MNX puts).
"Sell in May and go away." Words to live by.
Oh and I’m redacting my advice to start buying bond funds when the overnight rate hits 5.25%. There was so much corporate borrowing going on Thursday and Friday (to lock in lower rates) by the large houses of Lehman, Goldman, and Morgan. They know we’re going higher than 5.25% and probably thinking in the 5.75-6% range. Funny thing is, two years ago I was saying 5.5% and everyone thought I was nuts. Well, maybe I am nuts.