One Reason to Chill and Eat a Sandwich

I know you all want to hear the big gay call, long or short. But “The Fly” is here to tell you to quit wasting your time searching for unicorns. Markets do not crash anymore. They simply decline in a very orderly fashion, with a sense of style and honour. After the decline is viewed as “sufficient”, it is gently walked back up, amidst weeks of daily 40 point climbs.

Yes it’s true, the market is being flushed today. Major kudos to The Devil for making that call. However, this correction did not come out of the blue. I’ve been a coward for more than a week now, saddled with 45% cash.

Here is why I am hesitant.

That is an index that I call “The Risk Appetite Index” inside of The PPT. It is a compilation of muni, government and sovereign bond funds. It has plunged to new lows, thanks to renewed fears that the Fed hasn’t an exit strategy and rates are going up. This, of course, is ridiculous and will be proven wrong in time. But for now, this is the “prevailing wisdom.”

I will buy back into the markets when TLT stabilizes, The Risk Appetite Index stops going lower and IYR gaps higher on volume. Until then, we might grind lower for another 2-3 weeks, maybe even longer.

It’s June and if you’ve traded successfully this year, you have good gains to fall back on. Don’t be overzealous and press your luck into a poor risk environment.

There will be easier tapes than this one. Bank on it.