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How the Market Works

But Wait, There’s More…

Posted by kdadmin on March 6th, 2015.

Since selling our equity overweight a little over a week ago, the equity market, as represented by the S&P 500, is down over 50 points. Hooray for discipline!

Of course, this is in spite of the unemployment rate posting its lowest level in years.

This, my friends, is why the market seemed spooky at 2,120: When resoundingly good news pushes the S&P500 down by 30 points in one day, it means that emotion is driving the market. Have a look at the fear & greed index. It’s down from 75 on the 25th of February to 57 today.
But wait, there’s more. TLT (the ETF for 20 year treasuries, and the usual benefactor of a flight to safety) is also down over two percent today, thanks to a strong dollar. AS IS GLD (the ETF for the spot price of gold). SO, the equity markets are down. The bond markets are down. AND the gold markets are down.

Welcome to paranoia about the Fed’s interest rate increase.

Look, we all know what’s going to happen: the Fed is going to raise interest rates, most likely in June, and most likely by a tiny amount (like 0.25%). But, the waiting is like a horror film. We all know that the people that walk into the woods, by themselves, in their bikini, in the middle of the night, are going to be killed by the maniac. So, what is the solution? Stay inside when a maniac is loose. In this case, that maniac is market paranoia.

In other words, now is not the time to get all grabby and bullish in the market. Now is the time to wait for everybody else to wander into the woods while you stay inside. In your safe room. Mostly out of the market.

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