In the past few days we kinda heard the two things we needed to hear regarding portfolio security. (Debt Ceiling raised and Moody’s maintaining the US AAA rating). So why did the market take a dive in the two days immediately following? Well, because both of these announcements have a big fat “for now” attached to them, filled with uncertainty and tentative language that makes markets very uneasy. The boys on the Hill have a lot of work to do and markets hate when financial futures are in the hands of the elected…. especially when those who are elected are on the hot seat in a year.
In short, things feel very nervous in the markets both fundamentally and technically. Bullish Percent levels are declining and are sitting right around 50% bullish. Asset class price movements are acting defensively. Silver and Gold are running up again. Investment grade bonds are running up. Treasuries are running up and commodities and stocks are taking a bit of a hit.
This is a very tricky market to “play”. If you are invested, stay invested… for now. If you are in cash and looking for an entrance, wait a while. Come back after Labor Day. Only time will give us more direction.
Today, Corporate Bonds overtook Commodities as a the third place asset class so I am replacing my 10% portfolio holdings in Commodities (GSG) with Investment Grade Corporate Bonds (LQD) and then sitting on my hands until we get more definitive direction.
Stay alert and stay liquid. Major changes may be necessary in the near term, but for now, hang in there.
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