The Storm Isn't Going Away Just Yet.

They say what the market knows isn’t worth knowing. Investors around the world hope that once again proves true.

The US housing market is in its worst shape since The Great Depression.

Japan is about to declare a recession.

China is technically broken in front of the Olympics.

Iran snubbed its nose at the Western deadline on its nuclear program.

Consumers are grappling with the worst inflation in 27 years.

HSBC Chairman Stephen Green described financial markets as being “the most difficult they’ve been for several decades.”

The Royal Bank of Scotland (RBS) is expected to post the biggest loss in British banking history.

The doom and gloom is palpable and it’s enough to make the most fervent bears run for cover.

If only it were that easy.

As John Maynard Keynes once said, markets can remain irrational longer than investors can stay solvent. Widespread anxiety, in and of itself, isn’t a valid reason to swim against the tide.

With the markets however—as with life..—the destination we arrive at pales in comparison with the path that we take to get there. Therein lies the opportunity—and yes, the risk—in trading that journey.

Here's the Jedi Mind Trick :

We may be seeing the manifestation of an upside agenda into the US election. The two components of that dynamic were higher equity prices (so corporate America can issue secondary offerings) and lower crude, possibly to $100/barrel.

The key to affecting that reality is collective perception and that speaks to the importance of “higher lows.” Since the S&P closed at 1235 on July 15th, the bulls held higher ground at S&P 1235 on July 28th and S&P 1250 on Monday. Through a pure trading lens, those latter levels can be used for near-term risk definition.

Should they remain underfoot, an upside scamper becomes more likely with time. When and if that manifests, performance anxiety would percolate as fund managers eye their third quarter letters. It’s a bit forward-looking but that’s how the market trades and we must as well if we’re to keep up.

Successful trading is about ascertaining an advantageous risk-reward. This particular set-up, as it stands, continues to do just that.

In the end, markets will do what markets do. The only elixir for what ails us after years of financial engineering is time and price. The government will give the market all sorts of drugs but in the end, it must take its medicine.

That reality has crept into our consciousness but it’s a process until the point of collective recognition. The shifting social mood and the attendant risk reduction will last for years as learned behavior and behavioral excess is unwound. Once it has, we’ll be ready to build anew.

Just as everyone was bullish last spring and summer, however, nothing comes easy in a bear market and the crowd is rarely rewarded as a whole. We can debate our standing on the denial-migration-panic continuum but mainstream psychology is a toggle not a toss. It’s called the path of maximum frustration. Get used to it because it’ll be with us for a while.

When we chew through this prolonged period and find our way to the other side of the cycle, we’ll likely see an inside-out recovery—one that turns investors inside out by the time we recover!