Market Outlook

The overall U.S. market needs a major correction The writings are on the wall:

Rise in commodities (energy, metals, corn, etc)
Rise in commodities will indefinitely lead to a rise in basic materials which would lead to a rise in cost of doing business; rise in cost of goods and services; lower revenue and profits for most industries (except energy, metals, etc) and rise in inflation.

Rise in interest rate
The rise in inflation would compel the Feds to increase its interest rate further. This will rattle the stock market again. The interest rate hike would further hurt the housing market. We have seen in Singapore and Asia, how a high interest rate badly hurt the housing market. But in the U.S., to make matters worst, they allow 100% loan. If the price of their property drops, they will face a double loss - the outstanding loan is more than the value of their property but if they keep the property, they may not be able to afford the repayment as the interest rate increases.

Trade & Budget Deficit
Needless to say, the U.S. budget & trade deficit are extremely high. But some Republican still feel that the deficits are in good hands.

My 2 cts worth

For the major correction to happen, what the market needs is a trigger to prick the stock market bubble. What we see for the last 5 bearish days may just be a precursor of what is going to happen. I believe the trigger had not been pulled. The trigger could be anything from a huge pullout of funds from the U.S., dumping of U.S. dollars, new war in Middle East, U.S. housing market crash, oil price hike to US$150 per barrel, major terrorist attack, etc. Typically, the trigger is pulled when the market is least expecting it.

A classic scenario would be that the market rally after the recent fall. Perhaps, starting today. The rally could even bring the DOW index to its highest level ever (it was very close to achieve that before the recent market fall). Confidence in the market would be high. Conflicting market indicators were also interpreted as bullish news. About two weeks after the DOW breaks new highs, the trigger is pulled. Thereafter, all hell break loose.

As traders, we trade according to our plan. Do I plan for such a scenario? Yes. My recent positions had been mostly short positions. Should the market tanked again, my best instrument would be to short the eMinis (ES or ER2) as they do not have the uptick rule (unlike stocks or options). I have shorted ES during the last five days (after a long break trading eMinis - as I need to tighten up the trading rules for playing ES). It has been very rewarding - for which, I am thankful.

The market is starting soon. Till next time.

- PersianCat04 (Millionaire-in-progress)