Written by Lance Roberts, Clarity Financial
The most important words for any investor to learn is “I don’t know.”
Currently, “I don’t know” what will happen next with any degree of certainty.
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Nor does anyone else.
The “odds” favor the “bulls” currently because:
- Bull markets last longer than bear markets
- Bull markets are hard to break
- Bull markets can defy logic longer than most anticipate
But bulls, like bears, are only right half the time.
Unfortunately, when the “bulls” are wrong – they are “really wrong,” and the long-term damage to capital is irreparable.
This is why we maintain a focus on the “trend” of the market for maintaining portfolio allocations. When markets begin to break down, or change trend, and the risk of loss outweighs the potential for reward, we become aggressively defensive.
Currently, such is NOT the case, as the bullish trend remains intact.
The chart below shows the weekly view of the S&P 500 index going back to 2014.
Don’t get wrapped up in the technical specifics of the indicators, but instead focus on what they indicate.
(We will provide all our specific indicators to subscribers at RIA Pro, click here to get on our list for pre-subscription information)
The market has clearly remained in a bullish trend since the lows in 2009. The vertical black lines mark the points where the lower two indicators BOTH registered a sell signal.
- The first of the two is simply an “ALERT” signal which suggests investors should “pay attention” to their risk related allocations and rebalance those risks accordingly.
- When both lower signals are triggered, a confirming signal, such has generally been a good indication to more proactively reduce allocations, raise SOME cash, and further reduce risk related exposure.
Notice – I did not say “sell everything” and bury your cash in the backyard.
Currently, the market has not violated the accelerated bullish trend nor the bullish trend support levels from the pre-2016 correction advance.
It doesn’t mean it won’t happen. It just hasn’t happened yet.
We are not trying to “guess” at what the market “will do,” we are simply “reacting” to what it “does do. “
So, while we have taken profits in some positions and added short-market hedges, there is no reason at the moment to become extremely risk averse.
The trend is still bullish. For now.
That could change, and, as indicated by the green boxes, if it does we will act accordingly reducing risk, raising cash and hedging further as we have done previously during those specific periods.
We are certainly on high alert as there are many reasons to be cautious from internal deterioration, to rising rates and liquidity concerns.
But up to this point, this has currently been nothing more than a correction within a very extended bullish trend.
Just be patient.
We will know in a few days rather we need to sell more, or start buying.
See you next week.
