On The Precipice

It appears from today's action that the market has decided to opt for door number two (i.e. the slow water torture). Intraday rallies like this suck in the eager bulls while allowing oversold conditions to be relieved unfortunately before taking yet another leg lower.

Interestingly enough, volume was on the high side indicating to me that institutional repositioning is underway (smart money preparing for tougher times ahead). Unfortunately, they're not wasting time taking profits and raising cash, even in stocks like Vimpel (VIP), Mosaic (MOS), and Petroleo Brasileiro (PBR) that have been rock solid performers. So far I'm not hearing much in the way of fund redemptions and the like, but we soon will. When you see leaders falter like this, its a sign that funds are being forced to raise cash by selling even their favorite positions to meet fund redemptions. In addition, I saw lots of high volume selling in the emerging markets. A lot of investors have been hiding overseas but they're going to get smoked out and shot.

With today's close, we're on the precipice of an ominous pattern which looks especially troublesome given that we're still not in extreme oversold conditions like we were back in late November, again five months ago in August, and also back ten months ago last March. If we were really oversold right now, I could justify a buy into the market near these levels ahead of Bernanke's surprise (or not) and the government's free money giveaway. But, we're still not there yet. Moreover, the risk of holding into earnings (take a look at Intel (INTC)) doesn't look all that appealing to me. If we bottom out here again, we'll have plenty of time to put money back in play. It will take weeks, if not months, for the damage we've seen so far this year to be repaired.

Before I go, I must confess that I made the mistake this afternoon of turning on the TV. What I heard resembled much what I heard back in 2000 - that investors should be long-term focused and not worry about the market in the short-term. Funny how that is the recommendation now. For months on end it has been all about easy money and fast profits. But, when things go bad, now we should now just focus on being long-term investors.

Don't get me wrong - I love long-term investing and I think a long-term mindset is right for most people as you'll again discover in Friday's Q&A. But, it rubs me the wrong way when I hear that from the same short-term focused hypesters to just focus long-term when things have turned sour. These fools encourage you to simply look the other way, keep your losses and let them grow while fostering the view that the market eventually will save you. Ultimately, what happens is that people lose their life savings and more because they didn't ever learn how to sell and learn to recognize that times and market conditions have changed. After all, the worst thing that can happen to you when you sell now is that you'll have to buy back later at higher prices. Is that so bad?

Like I said back in December, this is not the time for hope and faith that all is well. The smart money is repositioning. Are you?