Bonds Keep Falling, Stocks Next

Attemps at catching knives in bonds has proved fruitless. Maybe the Fed changes that this week, but right now I doubt it. This trade gets woodchippered unless something positive happens quick.

Before I hit post, bonds rallied all the way back above the June 52-week low:

If bonds keep falling to 52-week lows, stocks will be at new 52-week lows soon enough. It's a simple formula: the value of future earnings is discounted by the "risk free" rate. As it rises, the value of the stock market declines. There are other ways of saying this such as there are alternatives. Bounces are possible, but if bonds are sinking, stocks will eventually catch them.

Crude is waiting for someone to pull the plug on the bathtub. Then whoosh. If God really likes the bears, crude's plunge will boost stocks and bonds for a bit and you can rotate fat profits off energy shorts into other areas such as tech for the next leg down.

I closed out my big Apple short trade on Friday expecting a bounce. It did bounce from where I sold on Friday, but now getting back down there. The thing I keep telling myself about bear markets, because I've lost more than I should have by not following this advice: it's better to be on the sidelines than in at the wrong time. Cash is a winner. Catching the down moves early, such as having shorted around the August top, and then shorting again on Monday before the big swoon, does deliver the largest returns. Yet if a big down move is underway, the bounce off the low is also going to be huge. As long as you catch the down or the up, and aren't wrongly positioned during those moves, you can earn big profits.