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Well stocks seem to be correlating to the bond market, specifically the Treasury market. With regard to the Treasury market the question is: will the FOMC go back in hard with QE purchases of Treasury paper, and reduce the junk that they have been buying of late?

I would say definitely yes, the second part, when, is not so easy to answer. If you are in stocks, what should you be doing? Well I have, a couple of weeks ago now, moved to market neutral strategies in swing-trade time frames. The breakdown in the COT correlations was an early warning of this conundrum, and with that breakdown, I changed into market neutral.

The bottom line is that no-one currently really knows how this pans out. We may have seen the worst of the dip in stocks, but I’m not so sure on that one, certainly not sure enough to go directionally long anyway. If the decline continues, how deep? I posited back to the breakout area, which is still a bit lower than we are currently.

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