I am back from vacation, looks like it turned out to be an expensive vacation. I have been bearish biased in my trades and last week might have been very profitable. Since I am a short term trader, when I go on vacation I don’t have any positions on.
The weak jobs data from last week confirmed the slowdown in economic growth and the market has responded with a strong sell off. The million dollar question is whether this is just a minor slowdown in a longer recovery or is this the early sign of a stronger slowdown. At this stage I am in the camp that we will not slow down further and the economy should be able to muddle along at a very slow rate of growth. The main reason I think we will not enter a recession is because I don’t see any sector of the economy(other than maybe the social networking area) where there is tremendous amount of overbuilding or mis-allocation of resources. If anything, businesses are extremely cautious and worker productivity is extremely high. Therefore I don’t expect a major reversal in economic activity from the current levels.
I think if there is a chance of a big slowdown it will be triggered from emerging markets as those countries have been on very strong growth for a long period and it appears the housing markets in those countries are in bubble territory.
Based on my belief that this is not the start of a large slowdown, I think the sell off is not going to be very large, my current view is that we should be able to stay above the 1200 level in the S&P 500. I think the summer period will be more like a wide trading range which has lower lows and lower highs.
I will update my views as new data trickles in.