I am due to send out a ‘Monthly Market Thoughts’ post next week as usual, it will also encompass Portfolio updates and Performance. However, below I have put together a brief note about my current market thoughts and especially why I feel a pull-back is due/how can one prepare for it.
First some indicators:
Nasdaq Comp is at 19,447 6.16% above the 50SMA. Note at days high it was at 19,696 and ~7% above 50SMA. A useful observation is often (not always) major indexes pullback when they get to 7% above 50SMA.
S&P 500 is at 5967.84 (down from days high of 6,018). It is 4.03% above the 50SMA.
VIX is only at 20.62 which is relatively subdued.
Put to call ratio is 0.9
Fear to Greed is 55 (on Twitter probably feels closer to 90!)
NAAIM Exposure Index reading is 82.66, was as high as 90 yesterday!
(Note NAAIM represents NAIIM managers overall equity exposure at the market close)
In Medicine we have something called “Clinical Gestalt”. It is as follows:
How this relates to the stock market is: at certain points an investor/trader can intuitively feel that things are about to happen based on integrating various pieces of information both objective and subjective. I feel that way now about a sharp pull back especially given potential for escalation over the weekend from USA-Israel alliance on Iran.
Just a few things I am seeing currently which lead me to be cautious are:
Companies moving 30-80% on no news,
0 rev companies trading at >$10B and still moving up 10-20% daily
Retail prophets claiming they are better than institutions,
Significant FOMO, chasing from one name to the next.
A definite complacency building.
signs in the tape of weakness and distribution.
So, what to do?
We are all still likely net buyers of Stocks for the LT so don’t want to be sitting out either.
We should be and will be buying on peak fear. Conversely selling some when there is complacency and greed.
Trading around a core is a strategy I use which allows me to keep exposure while keeping the portfolio moving. If feel comfortable can employ this.
Having a cash position is vital IMHO. If one is accustomed to a cash position then 5-10% is great and if used to being fully invested 3-5% is a start.
Review portfolio and ensure that don’t have too many similar bets exposed to the same factor e.g. if one has 10 port holdings and they are all fast growing, unprofitable SaaS or tech names then that is basically 1 bet.
Make a watchlist of names you want to add to including levels and conversely names you would cut on weakness.
Below are stocks I am watching and levels/ranges I am watching to add to them: