There’s a great movie that came out in the late 1960s called Cool Hand Luke. It’s basically a study of a non-conformist, anti-hero who resists authority and the establishment. The lead role of Luke was played brilliantly by the late, great Paul Newman. One of the lines from the film that I really love comes when Luke is playing a game of poker, and has just successfully bluffed his opponents out of their money. He had a “nothing” hand, but that didn’t stop him from playing it just right. When asked how he could make such a bluff, Luke famously states, “Sometimes nothing is a real cool hand.”

Now, about two weeks ago, right before the market sell-off and the crazy volatility that accompanied it, we instructed subscribers to get out of their equity holdings and into a 100% cash position. Or, as Luke might say, we moved in to nothing. And like the protagonist from the film, I agree that sometimes nothing is a real cool hand. Of course, in this case, the nothing that I am referring to is a 100% cash allocation.

Since getting out of the market, stocks appear to have found at least a short-term low at just above 1,120 on the S&P 500. As of this writing, the index traded just below the psychologically significant 1,200 mark, as can be seen here in the chart below.

So, where do we go from here? 

My 30-plus years of experience have me in the bear camp, at least for the short term, and for the following reasons. First, even though we’ve seen some solid corporate earnings so far in the second quarter, the macro economic numbers such as Gross Domestic Product (GDP) growth and unemployment still are very depressed. Second, we still have big troubles across the pond in Europe, and all signs there are pointing to a potential recession in one of the largest regions on the planet. 

Finally, I don’t see any short-term catalyst coming out of Washington that’s going to help either economic growth or the employment situation. The president and Congress aren’t about to agree on anything, and the contentious battle to raise the debt ceiling left most Americans frustrated at our nation’s leadership.

I suspect that we’ll start to see companies warn of a weaker economic climate for the remainder of the year, and we could see a rash of companies lower their guidance going forward. Further weakness in the U.S. economy and in Europe also may put more pressure on the market going forward.

For all of the aforementioned reasons, right now I think that the “nothing” of a 100% cash allocation will turn out to be a real cool hand.

If you’d like to hear more about how and why I moved my clients into cash, then I encourage you to listen to my new audio special report, “The Global Market Selloff – What You Need to Know.”