One more allocation into SPXU coming tomorrow morning. My last.
I have a time frame in mind for holding these short positions (in the form of inverse ETFs) of two months. I would like to find a better entry than I did today. But if I give up a point or two, then that is fine. I’m not trying to catch the bottom or top tick. Just building a position in an area that I feel will be rewarding in the months ahead.
QE3 will make no difference. The market will continue going down, unless the Fed announces a diabolically radical plan to reverse course. That’s not going to happen. I think the chances are slim that any QE3 program is announced on Friday, however.
As we go into September, there are two major events on agenda…actually, three major events:
1. The 10 year anniversary of September 11th. This is going to be a reflective period for the country. From a psychological standpoint it is going to bring to light all of the failures of the past 10 years. One way or another the attention will be turned to the economy. The fact that we have basically been standing still since the events of that day. A sensitive market and injured psyche of its participants will certainly not find the news inspiring. While it will not create massive downside, what it will do is put a ceiling on any rally attempts.
2. Earnings warnings. Before the October earnings periods, there will be a host of companies lowering their forecasts in September. This earnings warnings season should see more companies step forward than any of the past few years.
3. On September 30th a Federal budget needs to be passed by Congress. We went through this several months ago and the government was shutdown for a period of time. This time it will be worse. And this time the ramifications to the psyche of the country will be very real.
Members of Congress on both sides are still damaged, holding onto resentment as a result of the debt ceiling debate. They will be more determined than ever to hold onto their positions, without chance of compromise when it comes to passing the budget at the end of September. Very simply, this means a budget will not pass. Government will shut down come October.
The shutdown will bring into the spotlight the ineffectiveness and dysfunctional nature of government. It will cause doubt. It will cause people to question and reflect on all that is wrong. That’s just the psychological damage. There will be numerous fundamental ramifications of government shutdown, as well.
I expect the markets to fall for a majority of September into October. I am positioning for such an event now.