Week in Review

This is a very painful week for me.

Last weekend, I was thinking another leg down for the market, but S&P 500 has the best week since 2003. The bull market returned as every index produced sizable gains. The Dow gained +3.1%, the S&P 500 +3.6%, Nasdaq +3.5%, and the Russell 200 +3.9%.

1. I think this is a short term bounce, nothing more. Several risks are still remained in the market, but in worse shape compared to a month ago.
2. Subprime mortgage issues, the impact is far from over.
3. The slowing of the economy, mainly due to the slowing of the housing market, is still ahead of us. We'll have 1% growth in Q2 and maybe in recession in Q3 or Q4 this year.
4. The resilience of the inflation, oil price is not low, corn and other commodities are near their multi-year highs, this will force the Fed to think twice before it eases.
5. The shrinking of the profit margin. This is at the end of 5 year expansion since last recession in 2001, same as previous expansions, the profit margin should shrink near the end of the cycles.
6. And we have not consider the situations in Iraq, Iran and middle east, they can be in worse shape in the coming months, causes oil price to rise;
7. The potential slowing growth in China and India are not factored in.
8. All things considered, the long term (2 year) view for stock market is very bearish.

What's next:

1. Short term, from technical perspective, the market may try to take out the recent highs, if that's the case, if will be very bad for my short ETF positions. I think there are 20% chance we head higher.
2. And another possibility is, market heads lower after the best week of 4 years, and resume the down trend. I think there are 40% chance we'll go lower.
3. The last possibility is side way, 40% chance.
4. After March and April, we'll enter the traditional weak period of the market, and it will go much lower once the risks I listed above become evident.
5. The problem for me is, can I sustain another market surge? It's not looking good for me. I have to sell a portion of positions should the market go significant higher from here (10%).