Markets got wacked yesterday, as the economic outlook for 2009 and 2010 was grimmer than initially expected. The World Bank, a government funded lender to poor countries, said the global economy will contract 2.9% this year. That’s much worse than the 1.7% previous projected. The World Bank also cut its 2010 outlook to 2% growth versus its previous forecast of 2.3% for 2010. Also in the news, which shouldn’t be a surprise, the government announced that they see unemployment getting to 10%. This was widely predicted, but finally confirmed.
Since hitting its recent high, the major averages are down around 6% and likely well on their way to a 10% correction. The lack of substance behind this monster rally is starting to rear its ugly head. There’s no doubt that the market was severely over-sold in March of this year and was due for a rally. However, as usual the momentum swung the other way and stocks are no longer as cheap as they were.
Although stock futures are indicating a slightly higher opening, I suspect any early morning rally will be short lived. If we do see a rally over the next day or so, I think it would be a good time to hedge your portfolio by using some of the bearish ETF’s such as the QID (Proshares Ultra Short QQQQ) and the FAZ (Direxion Financial Bear 3X). These funds, along with an increased cash position will help with downside protection. Also, I urge you to tighten your stops or even take profits if you have them.
As always, let’s have a great day…
