US [eyes finally] Open?

Rose colored glasses are breaking and bearing voices are coming out in stronger force these days. The talk of a W-shaped recession grows. And the markets continue to react with declines after such a strong run up off March lows. And now the question begins to turn from "are we going to see a correction" to "how much of a correction?" Is the current 4% slide pretty much it? Are we headed back to March lows? How about a standard 33 or 50% retracement of the 40% pop we saw off the March lows? We're approaching a key level - the 200 day moving average on the S&P500 is 908. If we push through that, then the next support levels of note (in TSM's opinion) are 875 and 825.

Maybe, just maybe, the optimism is subsiding and our eyes are finally open to the economic reality that we're facing.

As TSM sees it - yes, the worst of the decline is over (but markets overreacted and need to come back - a V shaped recovery was priced into the market but doesn't actually exist and wont pan out in the economy. TSM thinks they are fair given the recent overshoot and that while the worst of the decline is over, there are still huge bank issues and housing issues to be resolved. Those areas aren't going to see measurable improvement for quarters and well into 2010. So retracing to 800 (50% correction) would be nice, maybe with a little pop off them and then steady, stagnant, very minimal side-ways growth from there through 2010. Also consider the storm that's brewing -- rising rates, huge debt deficits and rising gas prices. Put those into play and you have many consumers that have NO spare money for anything except survival. Not to mention that job creation is going to be very limited and that many of the jobs created will be temporary government positions.

As TSM sees other things - Oil is legit; maybe slightly too high for now, but $100 by end of 2010 is certain. Gold had its day and the dollar was weak. Inflation isn't an immediate concern but will be and so while a long position in gold wont hurt you over the next 18 months, why not stay away from it for a few months and see gains elsewhere. TSM continues to love emerging market plays in Brazil and China, although not until this market correction pans out. TSM really dislikes consumer discretionary plays and thinks shorts are the way to go here if at all.