The Weekly Trader

Each weekend, I study market behavior using sentiment and technical indicators. The goal is to use clues and indicators to determine if we are in a bullish, bearish, or sideways market environment.

JUST RELEASED: Understanding Options (McGraw-Hill, 2E), Understanding Stocks (McGraw-Hill, 2E), and Predict the Next Bull or Bear Market and Win (Adams Media): http://bit.ly/1bl0ZNk

 

AAII survey (6/11/2014)

44.7% Bullish. 21.3% Bearish. 34.1% Neutral.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (6/10/2014)

62.6% Bullish. 17.2% Bearish

Bearish: If sentiment is over 60% bullish.

Bullish: If sentiment is over 60% bearish.

 

VIX: 12.18 (on 6/13/2014)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

Moving Averages (daily): S&P 500 is above its 50-, 100-, and 200-day moving averages, and pointing down.

Bearish (Short-term Downtrend): Index crosses below 50-, 100-, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is above zero line, and above its red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above 9-day signal line. MACD line crosses above zero line.

 

RSI (S&P 500): RSI is at 61.36 (on 6/13/2014)

Overbought (i.e. Bearish): When RSI rises to 70 or above.

Oversold (i.e. Bullish): When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Bonds: U.S. 10-year yield is at 2.60% (on 6/13/2014).

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders).

 

Analysis: Last week, sentiment indicators were so extreme (overbought) a pullback was inevitable. Most sentiment indicators are still in the stratosphere, although they may come back to earth depending on geopolitical events. On the technical side, the trend is still up but there are signs this bull market is getting exhausted. Bullish investors believe the Fed will once again propel the market higher this week. They could be right because Janet should have soothing words on Wednesday (the Fed meeting). On the other hand, Iraq and oil could disrupt the market. This week, it’s a tossup what will happen as the signals are mixed.

Opinion: The market attempted to make another all-time high but took a hit as geopolitical events (i.e. Iraq) took center stage. Oil prices are rising and the world is watching to see what happens next. It’s a dangerous world and a dangerous market.

As I’ve written in a series of MarketWatch articles, the stock market is susceptible to a major pullback or correction. Because the market has gone up so high and so slowly, most investors believe it is unstoppable. The most bullish believe in the power of the Fed to save them by coming up with new tools and programs. The longer the Fed interferes, however, the more dangerous the market becomes.

I know this is hard for some bullish investors to believe but markets do not go up forever. Talking the market up higher at these levels (or tampering with the tapering) will cause unexpected consequences in the future. Instead of a correction, something far worse and unexpected could occur.

If you are bullish on the economy and the stock market, you don’t want to hear doom-and-gloom predictions. For five years, ignoring worst-case scenarios was a wise move as many of the most dramatic predictions were incorrect. Unfortunately, this is also why so many investors are so complacent. Many really believe the Fed (or their fund manager) will protect them from danger. When the inevitable correction comes, investors will be slow to react, or worse, think their stocks will bounce back quickly. That belief (that your stocks will come back to even) will damage many portfolios in the future.

In my opinion, the risk of the current market far outweighs the potential reward. Keep in mind that most people do not agree with me and are all in. After all, with the Fed’s help, this market bubble could continue to get even bigger. It could be weeks or months, but a monster correction (and bear market) is unavoidable.

As for me, I am not only out of this market in cash but also building short positions with inverse ETFs and some options. (Shorting is only for experienced investors who can manage risk. If you’re not experienced, cash is a comfortable place to be before a market crisis.)

Being patient and disciplined is the way to survive and thrive in this market. As the red flags and warning signs increase, prudent investors are taking profits or moving to the sidelines. To repeat, the downside risks far outweigh the potential gains. I might be wrong in the short term, but this market hasn’t had a correction of over 10 percent in more than two years. Complacent investors may think that’s normal, but it’s not. The clock is ticking, and it’s best to run for cover before the market comes back to its senses. Many investors are playing with fire right now, and most surprising, they do not even know it.

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

Each weekend, I study market behavior using sentiment and technical indicators. The goal is to use clues and indicators to determine if we are in a bullish, bearish, or sideways market environment.

JUST RELEASED: Understanding Options (McGraw-Hill, 2E) and Understanding Stocks (McGraw-Hill, 2E): http://bit.ly/1bl0ZNk

My latest book, Predict the Next Bull or Bear Market and Win (Adams Media), is available on Amazon or any Barnes & Noble store. Here is a link to the book and sample pages: http://amzn.to/1h1rZZu

 

AAII survey (6/4/2014)

39.4% Bullish. 22.2% Bearish. 38.3% Neutral.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (6/3/2014)

62.2% Bullish. 17.4% Bearish

Bearish: If sentiment is over 60% bullish.

Bullish: If sentiment is over 60% bearish.

 

CBOE Equity Put/Call Ratio: .50 (on 6/6/2014)

Bearish: Less than or near .50 is bearish (more call options are being bought).

Bullish: Higher than or near 1.0 is bullish (more put options are being bought)

 

VIX: 10.73 (on 6/6/2014)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

Moving Averages (daily): S&P 500 is above its 50-, 100-, and 200-day moving averages, and pointing up on mixed volume. Nasdaq above its 50- and 100- day moving averages and pointing up.

Bearish (Short-term Downtrend): Index crosses below 50-, 100-, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is above zero line, and above its red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above 9-day signal line. MACD line crosses above zero line.

 

RSI (S&P 500): RSI is at 73.25 (on 6/6/2014)

Overbought (i.e. Bearish): When RSI rises to 70 or above.

Oversold (i.e. Bullish): When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Bonds: U.S. 10-year yield is at 2.59% (on 6/6/2014).

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders).

 

Analysis: What a difference a week makes! In one week, the sentiment indicators went from mildly exuberant to extremely exuberant (i.e. that is a bearish signal). Remember that it’s possible for sentiment to remain overbought for longer time periods, but we’re definitely in the danger zone. If you look at the market trend, however, we’re going up, up, and away, which is fooling many inexperienced investors (and a few pros, too), who think they are looking at a healthy bull market. I know I’m in the minority but I must disagree. The uptrend is your friend in a strong bull market, but we also have low volume (danger sign), obscenely high margin rates, and fewer and fewer stocks making new highs. Investors who do not study market history or are greedy will buy blindly at these sky-high prices, and that is happening now. Bottom line: Strange things are occurring in the market, which tells me that something will crack (if you have the patience to wait weeks or months).

Opinion: As I mentioned last week, I am still getting emails from some readers who believe my advice to move to cash is “dangerous” and “irresponsible.” Others are angry that I would dare suggest that the bull market might end. A few sent me emails bragging about how smart they have been, and that I am “crazy” for not buying stocks right now as the market makes all time highs.

A note to those who think they are stock-picking geniuses: When a market is rising on low volume, when the number of stocks making new highs is shrinking, when the sentiment indicators are flashing warning signs, when too many people think the market will never go down, GET OUT. (I have to ask: What happened to the buy low and sell high strategy? If you follow this idea, you will not be buying stocks at these lofty levels).

I also do not understand why it’s “dangerous and irresponsible” to warn investors that the market is overheating. If I’m right, I have saved them money. If I’m temporarily wrong, they lost nothing but a few percentage points. They can always join the gravy train later when prices come back to earth. On the other hand, if you believe the market will go up indefinitely and the Fed will prevent a bear market, I have some tulip bulbs I’d like to sell you at outrageously expensive prices.

All the indicators I look at (including some proprietary ones that I don’t publish) are signaling trouble ahead. Most people do not have the patience and discipline to wait for the first snap (i.e. inflection or pivot point). When it comes, it will catch most investors, including many pros, by surprise. I believe it’s coming sooner rather than later, but so far it’s taking longer than I anticipated. I have the patience to wait, however, and I’m comfortable making 0 percent (or in the red with my short positions) as storm clouds appear.

Bottom line: Only you can decide how much risk you are willing to take. If you strongly disagree with what I wrote above, do what you think is best, and ignore my warnings. The next few weeks could be very interesting. As for me, I am looking to see if the sentiment indicators go even higher this week (that will happen if the market keeps rising).

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

Each weekend, I study market behavior using sentiment and technical indicators. The goal is to use clues and indicators to determine if we are in a bullish, bearish, or sideways market environment.

JUST RELEASED: Understanding Options (McGraw-Hill, 2E) and Understanding Stocks (McGraw-Hill, 2E): http://bit.ly/1bl0ZNk

My latest book, Predict the Next Bull or Bear Market and Win (Adams Media), is available at any Barnes & Noble store, and on Amazon right now. Here is a link to the book and sample pages: http://amzn.to/1h1rZZu

My latest MarketWatch article: http://on.mktw.net/1pbAqU7

 

AAII survey (5/28/2014)

36.5% Bullish. 23.2% Bearish. 40.3% Neutral.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (5/27/2014)

58.3% Bullish. 17.3% Bearish

Bearish: If sentiment is over 60% bullish.

Bullish: If sentiment is over 60% bearish.

 

CBOE Equity Put/Call Ratio: .56 (on 5/30/2014)

Bearish: Less than or near .50 is bearish (more call options are being bought).

Bullish: Higher than or near 1.0 is bullish (more put options are being bought)

 

VIX: 11.40 (on 5/30/2014)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

Moving Averages (daily): S&P 500 is above its 50-, 100-, and 200-day moving averages, and pointing up on mixed volume. Nasdaq above its 50- and 100- day moving averages and pointing up.

Bearish (Short-term Downtrend): Index crosses below 50-, 100-, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is above zero line, and above its red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above 9-day signal line. MACD line crosses above zero line.

 

RSI (S&P 500): RSI is at 65.73 (on 5/30/2014)

Overbought: When RSI rises to 70 or above.

Oversold: When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Bonds: U.S. 10-year yield is at 2.46% (on 5/30/2014).

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders).

 

Analysis: Many sentiment indicators are reaching the tipping point, especially Investors Intelligence, which is a survey of financial writers. In addition, the VIX is near a six-year low, which reflects overwhelming complacency among option buyers. The VIX tells us that option traders are not expecting surprises. So far, they’ve been right (but as a contrary indicator, it’s a warning sign). In addition, RSI is near overbought levels. In other words, sentiment is on the frothy side. However, moving averages are telling us the market is still in an uptrend. If you’re a bull, the chart is your best friend right now. Unfortunately, the higher we go and the frothier it gets, the market will eventually top out and reverse. Bottom line: The market is giving hope to the bulls and the bears, but so far, the bulls are winning.

Opinion: I’ve been in contact with a number of experienced, independent traders who are astounded at their proprietary technical indicators. It’s as if the market is on another planet, and for many old-timers, it’s a huge red flag. A lot of things aren’t making sense. First, bonds are rallying along with stocks, which shocked many fixed income traders. (Bonds were supposed to get crushed). Volume in the stock market was so low last week it seemed no one was participating, and yet, the market went up. That’s a red flag. The fear that money managers have of missing out on the next rally is another red flag. When too many people are in a buying panic, afraid to miss out, it usually doesn’t end well.

It’s true that the bulls have had their way for five years with a little help from their friends (the Fed). Most bears are laying low, biding their time and managing risk. Although this market is not going to end well, to manage risk, you must not short at the top. After all, the market can still go higher from here. In my opinion, the risk is so extreme right now that cash is the only prudent move to make. Obviously, many disagree with me (a large majority of investors are bullish). Buying inverse ETFs is also an effective strategy but only for experienced traders who are willing to take some short term pain (and cut losses if market goes against them).

Right now, this market is frustrating to both bulls and bears. The bulls are not getting the returns they have come to expect (10 percent or more), while the bears are losing money. If I’m right about the market (that it’s reaching a breaking point), here’s what you are looking for: Wait for a large down day in the S&P 500 that doesn’t immedately reverse. In other words, you might get a two-day selloff that isn’t extreme, but does make everyone take notice. If that occurs, that would be a signal that more pain is coming.

Sitting and waiting for an inflection (or pivot) point takes tremendous discipline, especially if you are bearish. If you’re bullish, however, try not to get trapped on the wrong side of this market. Perception can change quickly, and Wall Street is filled with the stories of those who could not get out of the market in time. If I’m right, snapping time is coming, but it could take a few weeks or months (or a year although I highly doubt that). As always, look at the market for clues. One thing is for sure: the lack of volatility and volume is a red flag, and the more red flags, the more dangerous the market becomes.

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

Each weekend, I study market behavior using sentiment and technical indicators. The goal is to use clues and indicators to determine if we are in a bullish, bearish, or sideways market environment.

JUST RELEASED: Understanding Options (McGraw-Hill, 2E) and Understanding Stocks (McGraw-Hill, 2E): http://bit.ly/1bl0ZNk

My latest book, Predict the Next Bull or Bear Market and Win (Adams Media), is available at any Barnes & Noble store, and on Amazon right now. Here is a link to the book and sample pages: http://amzn.to/1h1rZZu

My latest MarketWatch article: http://on.mktw.net/1pbAqU7

MARKET CLOSED ON MONDAY, MAY 26th

 

AAII survey (5/21/2014)

30.4% Bullish. 26.4% Bearish. 43.2% Neutral.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (5/20/2014)

57.2% Bullish. 18.3% Bearish

Bearish: If sentiment is over 60% bullish.

Bullish: If sentiment is over 60% bearish.

 

CBOE Equity Put/Call Ratio: .58 (on 5/23/2014)

Bearish: Less than or near .50 is bearish (more call options are being bought).

Bullish: Higher than or near 1.0 is bullish (more put options are being bought)

 

VIX: 11.36 (on 5/23/2014)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

Moving Averages (daily): S&P 500 is above its 50-day moving average, and pointing up on low volume. Nasdaq slightly above its 50- and 100- day moving averages and pointing up.

Bearish (Short-term Downtrend): Index crosses below 50-, 100-, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is above zero line, and even with its red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above 9-day signal line. MACD line crosses above zero line.

 

RSI (S&P 500): RSI is at 59.06 (on 5/23/2014)

Overbought: When RSI rises to 70 or above.

Oversold: When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Bonds: U.S. 10-year yield is at 2.53% (on 5/23/2014). 

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders).

 

Analysis: Financial writers are so bullish about the market it’s near the danger zone. The VIX may drop below 11 this week, an extreme level that indicates few option traders believe this market isrisky. Many retail investors are unsure what to think, which is reflected in the AAII survey results (overwhelmingly neutral). Technical indicators are telling us the S&P is still in an uptrend but moving at a turtle’s pace. Bottom line: This is a market that slowly moves higher, defying logic. If you want to survive the next year, logic is what you’ll need.

Opinion: This remains a dangerous market for many of the reasons that I have discussed in previous MarketWatch columns and blogs. Many people are willing to ignore reality and keep buying as the market tops out. The reason this market is so dangerous is that it has caused investors to forget the lessons of the past (2000 and 2007), red flags (i.e sky high margin rates), and reality (bull markets don’t last forever). The longer this slow-moving market moves higher, the crazier it will get.

Here is what I know: This is a dangerous market that must end one day. One day there will be a catalyst that will send the markets much, much lower (and back to reality), but no one can predict what that catalyst will be. Even more annoying, no one knows when that catalyst will occur. More than likely, the retail investor will once again be the last to get out.

How do you protect yourself? It will take extreme patience to manage this market, more patience than most investors have. You already know that I am not long this market at all. I am more than willing to give up 5 to 7 percent potential upside to avoid a 20 percent or more downside. That’s my opinion, but many people are all in the market because they don’t want to miss out on future rallies. Right now, the stock market is the only game in town if you want to make big money (which is another red flag). Only you can decide how much risk you are willing to take, and it’s not an easy decision. Sitting and waiting on the sidelines is not a comfortable position, which is why so many investors are going to lose money in the future. (Hint: Aggressive traders may want to initiate hedged short positions).

I know how the stock market story is going to end (very badly), but it could be a medium to long wait (depending on geopolitical and economic conditions, or rising interest rates). Until then, I will be patient. My main goal is minimizing risk while preparing for the debacle that is destined to occur.

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

Each weekend, I study market behavior using sentiment and technical indicators. The goal is to use clues and indicators to determine if we are in a bullish, bearish, or sideways market environment.

JUST RELEASED: Understanding Options (McGraw-Hill, 2E) and Understanding Stocks (McGraw-Hill, 2E): http://bit.ly/1bl0ZNk

My latest book, Predict the Next Bull or Bear Market and Win (Adams Media), is available at any Barnes & Noble store, and on Amazon right now. Here is a link to the book and sample pages: http://amzn.to/1h1rZZu

My latest MarketWatch article: http://on.mktw.net/1pbAqU7

 

AAII survey (5/14/2014)

33.1% Bullish. 22.6% Bearish. 44.3% Neutral.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (5/13/2014)

55.1% Bullish. 19.4% Bearish

Bearish: If sentiment is over 60% bullish.

Bullish: If sentiment is over 60% bearish.

 

CBOE Equity Put/Call Ratio: .69

Bearish: Less than or near .50 is bearish (more call options are being bought).

Bullish: Higher than or near 1.0 is bullish (more put options are being bought)

 

VIX: 12.44 (on 5/16/2014)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

Moving Averages (daily): S&P 500 is slightly above its 50-day moving average, and pointing down. Nasdaq below 50- and 100- day moving averages and pointing down.

Bearish (Short-term Downtrend): Index crosses below 50-, 100-, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is above zero line, and even with its red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above 9-day signal line. MACD line crosses above zero line.

 

RSI (S&P 500): RSI is at 51.42 (on 5/16/2014)

Overbought: When RSI rises to 70 or above.

Oversold: When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Bonds: U.S. 10-year yield is at 2.52% (on 5/16/2014). (Note: Bonds are rallying.)

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders).

 

Analysis: Investor sentiment hasn’t changed much from last week. Investors say they are neutral but margin rates are at all-time highs, which is a negative signal. Financial writers and a majority ofmoney managers are still extremely bullish, so it will take a correction to change their minds. VIX is still showing that option speculators are complacent, not fearful. Technical indicators are giving mixed signals, although the Nasdaq and Russell 2000 are in a downtrend. Bullish investors are hoping the Dow and S&P will lift these indexes rather than visa versa. Only time will tell who is right. The most interesting development lately is the rally in bonds, which has surprised nearly everyone. Keep your eye on the 10-year yield. Any extreme moves in bonds could disrupt the stock market.

Opinion: Last week, I wrote a controversial column for MarketWatch (http://on.mktw.net/1kg4b5p). In the column, I wrote there are signs a bear market is approaching, although no one can say when. I also don’t know the catalyst that will cause the current bull market to end, but I’m looking for clues. More than likely, I wrote, it will be a geopolitical crisis, an economic disruption, or a spike in interest rates.

After the column was published, I received an onslaught of negative comments and tons of emails. A few fund managers wrote to thank me for confirming what they believe, but the majority of investors attacked me for being “stupid,” “wrong,” and “insincere.” I am especially sympathetic to fund managers who are willing to be independent (those who are probably getting heat from their clients). Being a money manager in this current environment is extremely difficult. Right now, clients are pressuring managers to outperform the indexes, and will punish those who dare to move to the sidelines in cash. That in itself is a red flag.

I will never forgot what happened to Robert Rodriguez, an extremely successful fund manager who I interviewed for one of my books. In 2007, he correctly forecast the global meltdown, so he increased the cash position of his fund to 12 times that of the industry. His reward: An onslaught of redemptions and angry clients who questioned his decision. As it turned out, he was 100 percent right, but he went through hell before he was vindicated. It’s not easy being a money manager, especially when clients are getting greedy.

I was recently interviewed by MarketWatch columnist Chuck Jaffe, who said that he sometimes hears from investors who say (paraphrased):  “I am willing to take risks in the stock market. I just don’t want to lose money.” Unfortunately, investors can’t have it both ways. They want their money managers to make them rich without any risk of losing money. Good luck with that!

Right now, I want to be protected from a bear market. I have no problem waiting for its arrival even if it is several months. As Jesse Livermore said, it’s rare for traders (or investors) to sit and wait for underlying market conditions to change. Eventually there is a pivot or inflection point that will signal the beginning of a bear market. That inflection point is coming, and I’m patiently waiting while looking for clues.

I thought a lot about the emails and comments I received. Some accused me of being a “permabear,” but that is not true. I am looking forward to the day when a stronger and healthier bull market emerges. The main point is you should not be a permabear or a permabull. Either is dangerous to your financial health. To succeed in the market, it’s essential you remain objective. Those who refuse to acknowledge that a bear market is even possible are just as mistaken as those who are permanently bearish.

I don’t like to see other people lose money, especially retail investors who have no clue they are at risk. Some get angry for suggesting that investors move to the sidelines in cash. It’s up to each individual to determine how much risk they are willing to take. As for me, I believe it’s prudent to have cash in a dangerous market. I’d rather miss the 5 percent (or less) upside than get hit with a 10 or 15 percent correction. That’s my opinion.

I also know that after a major correction or crash, there will be an excellent opportunity to buy stocks that have been smashed. Many will disagree with me, but I believe the market is at risk. I’m keeping my eyes on the S&P 500. When that starts to crack, then things could get ugly fast.

This is important: Knowing when to stay out of a dangerous market is only one part of the equation. Equally important are using clues, indicators and observations to know when to get back in. As you may know, after the 2008 crash, many retail investors were too afraid to step back into the market, and in fact, many are just now entering the market (one of the reasons that margin rates are so high). Therefore, although having cash is an excellent way to avoid a bear market, you don’t want to be in cash indefinitely.

Bottom line: The market has the final word, and everything else is just opinion. And that is why you and only you must decide how to handle this market. Some will buy and hold through a correction or bear market, while others will move to the sidelines. A majority, however, don’t even think there will be a bear market at all. I can’t wait to find out who’s right!

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.