I have followed the psychology of the market "big boys" for quite sometime. One thing they are very good at is sucking investors in before they pull the rug out from under you.
This being said, investors are a little skittish after last weeks 200 point one day drop. Apparently the institutions were not the ones selling, it was the hedge funds. Hedge Funds take profits on a quarterly basis so they can justify their ridicules fees.
So, going forward, I would expect a rally into months end, followed by a market that trades sideways for a few months (S&P 1250-1290).
Then, just when you least expect it (Early Spring), the "giant sucking sound" will begin. This sucking sound will be investors being sucked into the market as the popular averages break above the 1290 mark and make new cyclical highs for the year.
The greed will be irresistible to the stock market mouse as he feels he is missing the boat load of cheese in the trap. Just when the mouse begins savoring the taste of the irresistible cheese, the metal wire will come slamming down on the back of his neck. This is how Wall Street works.
What will cause the potential rally to new highs? The Fed will finally pause, and the celebration will begin.
Make no mistake, this is a traders market. Stock investors who are nimble will make the most money. Longer term investors (unless they are buying deep value) will see their portfolios fluctuate up and down with very little results.
The perma-bulls would like you to believe that GDP growth will come in around 3.25% to 3.5%. The housing has been the key sector in driving GDP growth during over the past three years.
The bulls believe that a slack in consumer spending (due to debt and a housing slowdown) will be offset by capital spending by business and the government. No way, José'!
GDP is the measure of consumption (70%), business investment (10%), government spending (15%-20%), plus net exports. If 70% is the consumer, there is now way the other 3 can take up the slack for the 70%.
The key for us will be very easy. Buy when the Fed begins lowering rates, not when they pause or stop raising rates.
So, in a nutshell, we need to trade more. Our first move will be to the short side by owning the Rydex Tempest Fund (RYTPX) as the market attempts to climb back to its highs of a week ago.
We will look to trade out of this position by switching back to the Rydex Titan (RYTNX) "bull" fund sometime in March. We will ride the Titan fund up to new highs with selected stocks, and sell into the rally, and get short again, as the mouse begins to savor the taste of the cheese.
I would anticipate seeing the lows for the year between the summer and late fall.
As a side note, please save these comments and refer back to them as I don't want to waste your time by constantly repeating myself. I will only change my forecast when I see a big fundamental shift.
