So Was I Wrong?

Well, after two weeks of downtrend the Nasdaq and the Dow finally gave in for a bounce. It started yesterday afternoon and continued with accelerated force today. The volume was average but Dow was up 1.8% and the Nasdaq up 2.8%. Are things back to normal bullishness?

Nope, not even close. The Dow was down almost 1000 pts (8.5%) and the Nasdaq 300 pts (13%) before the bounce. The bounce today was technical, reacting to short-term oversold indicators. We won't know if it has any legs until next week when we'll need to see a follow-through with conviction.

Today gave hope to the retail longs, gave the comfort that the past weeks downtrend was an overreaction. Unfortunately, these kind of bounces are used by institutions to sell into and I think we can expect a continuing downtrend from here if we don't get the follow-through.

So what's bathering everyone? Well, there is a high probability that we are heading into a recession. Interest rates are going higher, probably to at least 5.5% by as early as August 8. The Beige Book indicated a pullback in real estate, a weakness in business growth, higher manufacturing prices and a weaker consumer spending. The problem with these statistics is that they are lagging which often results in that the Fed is overdoing the rate increases. That's the current fear.

Then we have the rest of the world which is raising interest rates to cool the growth both in Europe, Japan and the emerging markets. That will contribute to a lower dollar since the US is not the only place that will offer a high risk free interest rate. So who is going to finance all the debt? Devaluation.

Until I see a solid follow-through I'll be on the bearish side, waiting for new short entries. Commodities and gold looks really good at these levels since they are in a cyclical bull market. I just want them to confirm the bottom. The dollar is to early to short and equities needs to show much more strength to be bullish. Cash is still king.