Next week's trend is virtually impossible to discern in advance. We have been flopping around for the past week or 2 and that may continue for another week or so. We may see a Santa rally or more profit taking. Right now I am largely in cash in my trading port and feel no need to hedge my LT port. So, I am totally neutral.
Now I have a theory about the next 2-3 months but it may be totally off base - we will have to see how it plays out. The theory is as follows.
1. The profit taking has been huge ahead of year end this year and much of that money has been flowing to bonds. The evidence is flat to dropping rates on long bonds.
2. The profit taking has been primarily by hedge funds to lock down their fees.
3. The money can't stay in bonds, it has to flow back into stocks.
4. Big money investors (mutual funds) are patient and are not going to fight the tape. They will buy when the selling stops and not before.
This theory leads me to: Flat to down to the first of the year. Followed by 1-2 weeks down in Jan. Followed by a strong up move that will likely last 3-4 months.
We will see. Basically, I trade what I see not what I think I should be seeing.
Good Luck,
TOF
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