Well, I’m short equities because of the signal I got today; I went long gold both because of the geo-political situation but also because there was a perfect bounce off $1292 at the 10am EDT hour on 7-15 and that satisfied an a-wave / c-wave Fibonacci relationship of the entire a-b-c that’s been working itself out since we dropped out of the symmetric triangle “coil” back on May 26th. And YES, we need to just keep it Our Little Secret. ( heh, heh )

My reasoning is not all that technical MAD although we did get engulfing candles on two of the exchanges yesterday which was confirming for me. Basically though I think the market wants to see a correction before QE ends.

Part of the reason is that a correction coinciding with the Feds closure of its exceptional intervention might potentially be more damaging than most people have a stomach for and few want to see that unfold. They will thus be in the process of reducing positions and front-running that date already. As this gathers momentum the forces necessary to cause a healthy pullback will materialize.

There is absolutely no question that risk will rise the closer we come to that October end date and to the time Fed supports are withdrawn. The solution to that problem is that the market corrects in advance of the withdrawal such that Ms Yellens October speech does not result in new emergency measures being instituted to offset an event that clearly looks poised to be a triggering moment for equities.

I am taking cues from sentiment readings here. Market participants are growing ever more wary as summer rolls on. The steep declines we have seen in most commodities also tell me that the opportunity to shift between asset classes has arrived. There are not many picture perfect bottoms here though nor do equities present well with tops so most people will probably not be convinced by my reasoning.

I however feel strongly that as the market now recognizes the Fed is dead serious about its exit strategy that it will prefer to correct well before that final meeting on the topic of QE and thus set up the opportunity for a rally in October in spite of bond buying coming to a close.

So this is another way of saying that investors are actually looking for froth to be blown off the top and new entry opportunities created and for that to happen sooner rather than later. Put simply, nobody wants the party to end but the probabilities of an ugly conclusion to a multi-year bull run are significantly heightened if we cannot pull back before the punchbowl is taken away.

Thus, a summer correction is in the cards. I believe it is imminent and have said in another post that it may be prudent to position on certain soft commodities, energy and precious metals to weather the corrective event while keeping in mind stock markets will continue to rally at a later date leading into late September/October. I suspect we will see at least a 10% decline on the S&P and more for the Nasdaq and Russell.

What we DON”T want is an October crash. Everybody understands that.