March 1, 2016

Bearish on the markets - S&P500

I fear that "ice"-- a spiraling of deflationary influences -- is now ahead for us. The signposts are everywhere. Yesterday, we saw them in:

*     the Japanese yen's strength;

*     the rise in U.S. car-payment delinquencies;

*     diminished U.S. consumer expectations;

*     more global easing, and a possible retreat from Federal Reserve rate increases this year;

*     a precipitous drop in agricultural prices;

*     the many fixed-income markets around the world where negative interest rates prevail.

So, I've now become bearish in both the short and intermediate term.

Reflecting this, I made the ProShares UltraShort S&P 500 ETF (SDS) -- an inverse play on the S&P 500 -- my Long Trade of the Week at $21.50 at midday Monday during the teeth of the rally. And I made Amazon (AMZN) my Short Trade of the Week at $554 yesterday afternoon.

Nonetheless, I sold half of my SDS long for a profit yesterday afternoon, as I base my market views on fundamentals. I simply establish a fair-market value for individual stocks and the S&P 500 and make investment and trading decisions accordingly.

I try to be consistent. I don't frequently change my market views based simply on price action, but always try to ground my analysis and investment management on fundamentals.

Moreover, I believe the disruptive impact of quant strategies has discredited stock charts and the ability to interpret them. So, I prefer to be anticipatory rather than reactive, opportunistically capitalizing on the random and exaggerated intra-week swings that we're seeing in the market.

At times I might be wrong (and will admit it), but I strenuously stick to the game plan that I outline in my daily diary.

In my view, the S&P 500 is going to spend most of 2016 in a broad trading range of 1,800 to about 2,000 -- with slight overshoots and undershoots to my fair-market-value calculation of 1,860.

And if I've erred in that FMV calculation, I believe there's more risk to the downside than to the upside, as I anticipate the market's main averages will drop by low double digits for 2016 as a whole.

But my view isn't fixed; it's a function of the developing global economic and profit-growth picture. So ... stay tuned!

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