We had three uninspired up days from Monday to Wednesday, and literally the shit hit the fan on Thursday and Friday. It felt like a preface to a crash (I am not predicting a crash coming; I am simply reading the pulse of the market out loud. In other words, what the underlying market is telling me)--frankly, I will not be surprise to see DOW Industrial break below 10,000 next week. If not, sometimes this month.
The market sold off in heavy volume due to additional evidence of US economy recovering. The notion doesn’t feel right. But that is the exact pulse of the market. The market is contradicting the economic data. Once again, the market sold off in heavy volume due to additional evidence of US economy recovering.
You must know the market is omniscient. It is saying that the improving economy will force rates higher (that is a no brainer). But here is the kicker. Higher interest rates means pressure on the market, especially one that was built from consumer debt. The key is "consumer debt". The market knows the debt is what caused the market to go up for the past year, yet not many investors realized it (mainly because they watch the bubble-vision MSNBC and read only mainstream newspaper like WSJ). In addition, I also see many investors know something is wrong, but are unwelling to question it.
Since high interest rate is the pin that pops the debt bubble, the market reacted negatively. And you can see that in the financial sectors (C, COF) and consumer goods (WMT, HD). The only sector that defies the gravity in today’s action is the wildly oversold Semiconductors ($SOX).
If you don’t believe in the fundamental debt bubble, at least believe the technical breakdown of Financial Select sector SPDR (XLF). The debt bubble is cleary in danger.
Although I try not to make stock recommendations on this blog (I may in the future), I do want to urge investors to stay out of the stock markets, and just hold cash.
posted by jason @ 6:52 PM
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