Bearish going forward

My decision to short the markets back in February was way too early, as markets reversed to new highs instead. I was forced to cut my short positions, and turn long instead, incurring an overall small loss still.

Now, I am initiating new short positions, as I believe that the markets are finally primed for correction. The reasons:

•  US stocks now trading at frothy valuations (PE 18 times)
• The Fed's tapering of quantitative easing ends in October or November, and investors will begin pricing in Fed's rate hikes
• Sentiment indicators show extreme investor bullishness

In fact, Normura's Bob Janjuah has predicted that some point in the third quarter, anything up to a 10% correction would occur. A bigger correction, depending on how soon we hit 10 on the VIX, may happen four or five months after that. Historically, when the VIX hits 10, it tends to explode upwards (very bearish sign). Of course, it can stay around 10 for a very long time, meaning markets can still trend higher for now.

 

For me though, I am maintaining my shorts.