Heading into the final hour of trading before a long holiday weekend, the market is behaving in a decidedly non festive manner. Concerns about Fitch’s downgrade on the creditworthiness of Spain, among other factors, have been pushing stocks lower all day. Trying to ascertain whether longs or shorts will be more apt to force the action before the three day weekend is a pure coin flip at this point. Beyond that, the rally we saw yesterday quickly worked off our oversold condition, and even put some indicators, such as The PPT broad market hybrid, into overbought territory.
Needless to say, we continue to be in a very tricky, news driven market. To argue with Mr. Market, via bottom calling, has been a money losing strategy thus far. However, as yesterday showed, even the bears can get slaughtered in a sharp downtrend when they press their bets too hard and do not take profits.
Thus, cash is where you want to be right now. I cannot overstate the power of holding high levels of cash when we see market conditions such as these. By no means do I prefer cash over equities over the long run. However, there are certain times when it is absolutely essential. Whether you realize it or not, many traders are being wiped out as we speak by this most recent correction.
Eventually, these unhealthy market conditions will change. When it does, I will be eager to get involved again. Until that time arrives, cash and patience are still where it’s at.