Ahead of Janet Yellen's Congressional Testimony Wednesday morning, ask yourself these five questions:
1. What are the chances that Yellen's remarks will have wording that will create an equities selling frenzy?
- Answer: Odds are not favorable. A lot of damage has been done, she isn't going to want to add to it after her disastrous rate hike.
2. What are the chances that Yellen, realizing that she looks like a complete moron for raising interest rates in the face of a recession threat back in December, intentionally says something that will make her look even worse?
- Answer: Odds are not favorable. Again, saying something stupid will not only make the markets sell-off, but will make her out to be a horse's patoot.
3. What are the odds that Yellen attempts to save face by saying something that will calm the markets and even goose them higher?
- Answer: Odds are favorable. A rising market makes her decision from December look more acceptable. That is the only way she is vindicated for the rate hike.
4. Odds that any pumping by Yellen marks a bottom in the current selling?
- Answer: Odds are not favorable. Just look at what happened when Japan went NIRP. How long did that last? One day. Just one day. So don't get your hopes up for a bottom.
5. Even if you can correctly position your portfolio for the ultimate direction the market will take following Yellen's remarks, what are the odds that there won't be plenty of volatility on the intraday charts that could risk you being erroneously stopped out while trying to appropriately manage risk?
- Answer: Odds are favorable.
My Conclusion
I'm staying 100% cash into her testimony. I covered my two short positions Tuesday morning and after trying to dabble some in (N:IWM) to the long side, I closed that position out as well. If the market sells off Wednesday, then fine. I'm all cash while the market is going to waste. If the market rallies -- and legitimately trends higher -- then there will be opportunity to get long as the market moves up.
To me, I'm in a win-win position.