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He's no longer short the market, but that doesn't mean Doug Kass sees smooth sailing ahead.
The president of Seabreeze Partners Management has long warned that stocks were set to suffer a correction. He recently foresaw the S&P 500 breaking below 1,595 to swiftly hit 1,560. Now that Kass has seen the requisite move, he has shifted his net positioning from short to neutral, and predicts a range-bound market over the next several months.
But Kass is still worried that the market could encounter massive downside—and that most are unprepared for it.
"My greatest concern," Kass told CNBC's "Futures Now" on Tuesday "is that there is almost a universal view that stocks have limited risk from here."
But for Kass, that is far from the case, because of the massive spike in interest rates the market has already seen—and which is widely expected to continue.
"It is unclear to me how the U.S. economy is going to handle a rise in rates," Kass said. He then outlined three reasons why higher rates could pose a major problem to the economy and the stock market.
It hasn't been an easy week for gold. It dropped over 6 percent on Thursday, and hit a nearly three-year low on Friday before recovering very slightly in early trading.
Traders blamed Ben Bernanke for the metal's collapse. On Wednesday, the Federal Reserve chairman announced that he was looking to "moderate" the Federal Reserve's bond-buying program "later this year," and to "continue the reduce the pace of purchases in measured steps though the first half of next year, ending purchases around midyear."
This signal that the Fed's quantitative easing program may be coming to a close spooked the stock market, but was even tougher on gold, which investors often hold to hedge against inflation. The expectation had been that quantitative easing would stoke inflation and thus be bullish for gold, but if quantitative easing is ending, a major reason to own gold has been lost.
(Read More: Gold Selloff Isn't Over: Pro Trader)
But Peter Schiff says investors have it all wrong.
"People are jumping to the wrong conclusion. They think the Fed is going to tighten—they're not. In fact, the next move from the Fed is to expand QE," the CEO of Euro Pacific Capital said Thursday on CNBC's "Futures Now."
Schiff believes that the U.S. economy cannot sustain itself without the quantitative easing—so the Fed will jump back in.
"The U.S. economy is going back into recession," he said. "The phony recovery that the Fed created is evaporating before its eyes."
(Read More: Why I Became a Gold Bear: Pro Trader)
Long-term gold holders are in the cross-hairs again.
After trading to new yearly lows and then falling below $1,320, gold on Thursday reached its lowest level since September 2010. Friday's session has seen gold enjoy a slight profit-taking bounce to retest a high of $1,301.70.
As the dollar rallied on Thursday, with the Dollar Index stretching back above 82, commodities across the board saw tremendous pressure in dollar terms. The Dollar Index was slightly negative on Friday, and you can expect a close below 82 to support gold. However, a retest of Thursday's highs and major resistance at 83 will be very bearish for the metal, as well as for other commodities.
(Read More: Why I Became a Gold Bear: Pro Trader)
Bullion is feeling the pain, dropping well below $1,300 after Wednesday's Federal Reserve statement delivered a decisive blow to gold prices. The prospect of a more responsible Fed has led to a buoyant dollar and a sharp selloff in precious metals.
I have fought this move for a long time, but I've now come to a new conclusion. I finally realize that it's not a question of the Fed's level of accommodation—which is clearly high—but of how the Fed's policies compare with those of other central banks. Right now, the Fed is the one central bank that is considering tighter policies, and that seems good enough to keep weight on gold prices, even if those tighter policies are enacted at an undetermined time in the future.
(Read More: Taper Tipoff? Bernanke Hints Easing End Is Nearing)
It is the market's anxious question: Will Ben Bernanke roll down bond purchase? For Pimco's Tony Crescenzi, the answer is clear: "No."
"What we expect from the Fed is for it to suppress volatility, and it can do it on a number of ways," the Pimco market strategist and portfolio manager said Tuesday on CNBC's "Futures Now." One of those ways is to "indicate that the $85-billion-a-month is staying," Crescenzi said.
Crescenzi sees the quashing of volatility as a major goal for Fed Chairman Bernanke. "What the Fed has attempted to do is suppress interest rate volatility, and push investors ever-outward along the interest rate spectrum," Crescenzi said. "You could call Bernanke 'Mr. Volatility Suppressor.'"
Crescenzi believes a Fed message that scares investors is one of the few things that could actually increase bond yields right now—because Fed action is not imminent.
"When bond investors believe that the Fed will be on hold for long periods of time and sitting on interest rates like an elephant on an ant, the bond investors don't look for that extra yield for the uncertainty that exists for the policy rate, because we're not expecting the policy rate to move," Crescenzi said.
So as important as maintaining the pace of asset purchases is, Crescenzi believes the Federal funds rate is even more important. "The more important anchor for interest rates is that Federal funds rate, which is at zero," he said. He expects the Fed to reassure the market that "there will be a considerable time between the end of asset purchases, and the first rate hike."
The technical setup for a higher S&P looks good. Equities continued to trade higher, with the S&P closing above the 1,349 to 1,351 resistance in the June contract, but just below the 1,355 breakout level. We will now be using the September contract, which trades roughly 6 points lower than the June contract, and traded up to 1,648.75.
Wednesday's high is 1,649, as this aligns with the 1,655 line in the sand from the June contract. The market will likely stay quiet into the 2 p.m. EDT Federal Open Market Committee statement, and Bernanke's 2:30 p.m. news conference.
(Read More: Fed Likely to Keep Options Open on Bond Buying)
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