Jared's Market Commentary - The Secret Is out...and Nobody Cares!

By Jared S. Rosenbaum So the market declines 7 out of 8 days in June, drops about 9% straight with the exception of a small up day, and finally...FINALLY, people seem to notice that there is some weakness in the market and perhaps the overall economy. I actually didn't even feel this until Friday, when the 1.5% drop was all over the news everywhere. The VIX (volatility) has really barely moved, and so far nobody I've directly talked with is taking any action. So people are noticing, but nobody cares...yet. This leads me to the conclusion that while we might see a bounce soon, this market is going to have a wash out in the near future. I think too many people still have memories of 2008 and the last thing they want to do is see their portfolio cut in half...which ironically is what will lead to their portfolio getting cut in half. The market is now down 10% from the peak not too long ago...as it approaches 15% or 20% you will see increased nervousness that will lead to everybody pushing the panic button at the same time. If I was guessing, I actually think it will happen sooner rather than later. We are about 2% away from the lows back in March and I think it's only smart to believe this will hold. Therefore a washout on Monday morning would be the most idea situation to setup a nice bounce. Let's assume that happens. After that, we will get one of two outcomes: Either the market will shoot up higher and work to take out the highs and life is good...this is actually a reasonable expectation since there is so much bad news being priced in right now. Additionally, a correction of 10% is reasonable inside a bull market...which last time I looked, that's what we're doing. However, if the news stays bad AND earnings next month are not so rosy, it is conceivable that any bounce we see over the coming weeks (based on when we wash out) will be an opportunity to exit and/or short, as the market will then set to move another 10-20% lower (ultimate target would be somewhere around 1010-1040 on the S&P (we are currently at 1270)). It is way to early for me to call this a garden variety bull market correction, or if this is really the start of another 2008. With the election looming, I can't imagine any politicians are really going to do "the right things" and therefore I'm sure we will raise the debt limit, continue all programs, and everybody can spend like there's endless money...that would mean higher stocks. However, the Europeans are really a mess and now even the oil kings cannot agree on policy. Maybe it's baked in, maybe it's not. For me, I am sitting on some nice gains for the year and am planning two divergent strategies...first, in the retirement account, I am currently 90/10 (actually now it's closer to 93/7) and plan to reallocate to 50/50 cash/stock if/when we get a hard washout of this market. I will then keep it there, even if the market tanks further...should we see the S&P under 1100, I will move towards 100 equities. On the other hand, with the trading account, I plan on sticking to an overall bearish thesis, while taking some shots long when appropriate. I fully intend to risk the gains in both directions, as this market is ripe for sharp moves. Of course this could backfire (and likely will), but these volatile periods only come along so often so I feel it is my civic duty to take a shot at the American Dream of being retired by 40. So I know I usually offer some kind of thought for the "average Joe" investor, but this current move has put us in a pickle. If you haven't taken off any exposure yet, it's hard to do so when the market is down 10% On the other hand, if we lose another 10%-20%, it will obviously hurt more. And of course, if you sell everything and we go back up 10%, you will beat your head against the wall for doing so. Perhaps I will offer this, if you decide to sell, then stay out for a good 3-6 months...if the market rips higher, surely it will come back down. If the market tanks, you will be thankful and can get back in at better prices. You just want to avoid selling low and buying high, or not selling low and selling lower. Oh, and one other thought to throw out there...on Monday I have a huge meeting with a bunch of people coming in from out of town. I will be tied up from 9am-2pm, which almost guarantees that the market is going to do something drastic during that time period. For all I know, we will open down 2% and climb all the way back to even (or up)....all I know is that any time I am busy with something of that nature, the market will always do something extremely opportunistic and usually it's exactly what I wanted to happen...just on the wrong day! For the record, I am about 25% short (80% cash) going into the weekend and will have orders in place triggered to sell should we get a sharp move lower, or a reversal higher (will use trailing stops, which I hate, but I need to do something in case there is a strong move against the positions). Also for reference, should this market really deteriorate further, I like (GOOG) to 500 and then 450, (AAPL) to 300 then 280, (GS) to 125 and maybe even down to 90 (this would be based on the banks getting clobbered), (MGM) to 11, (CAT) to 90, (SLV) to 25 (or AGQ to 110), (MA) to 220, and I would love to see (NFLX) go back to 200, but that stock has defied gravity forever and just won't stop (and is a supposed takeover target, which I don't believe).