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Gearing Up for a Meltdown - How to Trade a Bear Market...

"THE SIGNS I SEE... ARE DISTURBING SIGNS"
-Robert S. McNamara

When asked by President Lyndon Johnson in March of 1964 about the state of affairs in Vietnam, Secretary of Defense Robert McNamara replied:

      The frank answer is we don't know what is going on out there.  The signs I see coming through 
      the cables are disturbing signs.  It is a very uncertain period. 

While I would certainly never trivialize the sacrifices made by the millions of soldiers, men, women and children in Southeast Asia during the Cold War and anti-colonial uprising, it may well be time to buckle up because the signs coming out of markets across numerous asset classes are lining up in disturbing order as well.


EQUITIES

Equity markets have been rocked by waves of selling that were compounded by automation, again, as short selling bots took out a leveraged inverse volatility ETN worth hundreds of millions of dollars in just a matter of hours.

While stocks have moved off their lows, the market is now facing a series of strongly bearish technical factors.  Here's the chart:



FIXED INCOME - IT'S #bondaggedon ALL OVER AGAIN

A couple of years ago, a the term #bondaggedeon was trending on Twitter as market observers - casual and professional - tried to call when the bond market would ultimately collapse.  Well don't look now but it may be time to bring that hashtag back as the bond bleedout starts to flow faster.

Here's the Bloomberg/Barcaly Bond Aggregate chart over the last 6 months:


Market observers might argue that the bond market is simply gearing up for higher interest rates as the Fed moves to finally end monetary stimulus from the last recession - A DECADE AGO!

If that's the case, then what's up with the dollar?


Yeah, this doesn't exactly fit the "stronger dollar from rising interest rates" narrative.

The dollar's weakness comes at a bad time as geopolitical indicators point away from the United States as the "leader of the free world."  As Washington adds trillions of fresh deficits onto an already bloated tab, the consequences could be dire for the country if an alternative global reserve currency emerges to rival the dollar.


I'll follow up this weekend with strategies to take advantage of what is shaping up to be a difficult trading market.

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