As we said last weekend, cash is king. And it certainly was as the major market indexes slashed lower following President Trump's Wednesday Liberation Day tariff announcement detailing the full extent of his tariff plans. It was far more aggressive than investors had anticipated, and therefore represented a Black Swan of sorts. The market certainly responded in Black Swan fashion.
In the process both the
NASDAQ Composite and the S&P 500 closed below their August 2024 low, seen during the Yen Carry Trade Crisis at that time. Forced selling is now in full effect as the market starts to anticipate a severe recession resulting from Trump's uber-aggressive tariff policy. Economic
uncertainly has now become
certain economic destruction. That said, bearishness and fear are beginning to reach high levels, so we could be approaching a near-term reaction low. We would not see this developing into a new bull market, however, but merely the short-term terminus of a sharp leg down in an ongoing correction or bear market.
As the selling continues, investors are forced to deleverage, creating the phenomenon of
forced selling where nothing is safe, and anything and everything that is not nailed down will get sold. At the same time, trying to get short now exposes one to any normal sharp reaction rally. For now, cash remains king.
The
Market Direction Model (MDM) remains on a
CASH signal.
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