Getting Defensive Here
I'll take this +4% day as an opportunity to sell the strength and get defensive. There are too many structural problems that need to be sorted out. The volatility for the next several weeks should be trending higher and the indexes trending lower. I think we retest the lows of the past 12 months in the Dow just below 10,000. If we fall below 10,000 then I think 9,000 is a real possiblity.
I say this with a grain of salt because so many companies have great balance sheets and trade at a fraction of forward earnings multiples. My theory is that these multiples can not be believed and that cheap really isn't cheap in many cases, especially if we are looking at a double dip recession.
Policy makers are stuck. If they supply more stimulus they create bigger deficits and rish further credit downgrades. If they cut budgets, they squash economic recovery and risk recession. It's a no win situation and they are running out of policy responses that have any sort of muscle.
This will not be sorted out anytime soon.