Crash, bounce, or sideways — what’s next?

It’s 12:41AM Eastern time, 10-May-2010 and the Asian markets are up—evidently they are liking the central banks moves to shore up the Euro.   I think Greece’s days in the Euro camp are numbered—maybe 6 to 18 months.   The UK has shown that it is perfectly OK to be a member of the EU without being on the Euro, and I believe Germany and France will soon tire of bailing out Greece when their empty promises of fiscal reform don’t pan out.   Devaluing a currency is a much less painful way out of a crisis like this and I think all parties will eventually come to that conclusion.

Regarding the market for the next couple of days, I think there is too much fear out there for a sustained rebound, but other than that I don’t have strong opinions on what’s going to happen.  I’m about 80% in cash, and happy to be there right now.  Not losing money isn’t a glamorous goal, but from first hand experience a week like last week is no fun for the buy and hold crowd.  When markets go down, they go so fast—even without the help of warring computerized trading programs.

The 2003/2004 vs 2009/2010 tracking for SPY got back in sync on last Thursday—when SPY matched its 6 year old value again.   If I had only bet on my own hypothesis (that SPY 2010 will continue to roughly track SPY 2004) I would have made a boat load of money going short last week.  If the synchronicity continues SPY in  2010 will show much wider swings than 2004.  Looking at the graphs, the big question is whether the 2004 bottom trend line will be the 2010 bottom line too, or will my already projected 2010 bottom line turn out to be more like it.

SPY 2003/2004 vs 2009/2010, click to enlarge
SPY 2003/2004 vs 2009/2010, click to enlarge

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