Today's the kind of day that tests your mettle because you are buying or selling in thin volume. Some things are looking good (such as rates and the PMI), but what awaits us on the macro front -- Syria, Congress and Labor Department employment reports -- can trump anything we see on our screen.
There are two constants though: Neither China nor Europe is a headwind. These two have a degree of momentum that could break the fall of any of our man-made calamities.
Sometimes it seems that the path of least resistance is to cut and run. We can all see that this market could be down a quick 4% or 5% from current levels if everything in the American "parade of horribles" comes true.
My problem is, what if they don't? What happens if our government actually functions and we get in sync with Europe and China? Are we going to be able to get back into Eaton (ETN) or Honeywell (HON)? Will Boeing (BA) leave us behind? Will the banks be able to settle in to a world where 10-year rates stay at 3% and the public adjusts to the not-as-great housing affordability of the moment simply because of pent-up demand? Will the autos take off because even if the U.S. is weaker, the real problems are overseas and they are turning from headwinds to tailwinds?
I know that at my hedge fund, I would be tempted to press the short bet, assuming that I could pick up maybe 2% on the downside if one of these issues goes awry, which would seem to be the correct view. But that level of nimbleness is so difficult to fathom that it needs the precision of an Olympic diver to navigate.
So we trim our portfolios. For Action Alerts PLUS, we are selling $2 for every dollar we put in until that situation reverses 3%, 4% or 5% lower to where the market reflects the uncertainties our government has created for us.