Speculators are on shaky ground. We have known knowns, markets can either go up, sideways, or down from here.
We have our unknown unknowns, which are impossible to anticipate or plan for so you manage risk accordingly.
But we have our known unknowns to which I think it’s best to assign probabilities to, handicap if you will, in order to speculate through this tight spot.
Handicapping possible outcomes is no different than thinking in decision-trees. Here’s a small example of where we could be at, but obviously one has to consider multiple trees and multiple outcomes.
From there, assign probabilities and ascertain next course of action with capital.
But with unknowns come fear. Fear of loss. Fear of being wrong. Fear of career risk. Fear of missing out.
My gut and the tape tells me it’s time for a correction. The action last Thursday was the starting gun and we got off to a fast start. I think big money pushes their shorts while also collecting profits on “longs” within the rally.
If this equities correction has legs, I think 15%-ish lower in the S&P 500 and 18%-ish lower in the NASDAQ is where we’ll find heavy support. In my own handicapping, no new lows in this correction, but serious fear.
Don’t fight the Fed has been one lesson in this rally but but don’t fight retail, in the short-term, has been another. None the less, I’d still assign the highest probability to that possibility on the far left in the diagram above.
And if we’re assigning letters to this one possibility, here’s your tilted-W.