Torn

I am torn in my opinion of the market. Fundamentally, the proverbial excrement is about to hit the fan. While when I look at my indicators the market seems to be in excellent shape.

From the standpoint of sentiment the market looks very similar to the way it did in February. As in February, the market continues to rise despite the fact that the crowd is bearish, which is a very bullish dynamic. The market is also oversold in the intermediate term.

On Friday I outlined the bearish fundamental headwinds so I will not rehash them again. If the economy is going to fall into a double dip recession it should happen now. I believe that a double dip recession is a high probability outcome.

There are differences between February and now. Seasonality was a tailwind in February and is now a headwind. Additionally, the economic numbers looked great in February as they were being compared to the depth of the recession and stimulus was still having a positive effect. That is no longer the case.

My plan is to pare down my bullish positions by expiration and be in all cash or mostly cash. This rally was the easy call in my opinion. What happens next is a tougher question. I will let others fight it out.

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