Just over two weeks ago our sentiment and valuation indicators moved into an extreme zone associated with high probability of a market pullback. Investors were poorly positioned and increasing complacent to the point where any bad news would cause a reversal in the herd mentality.
Now we have markets in full retreat based on macro concerns with Greece, Portugal, Spain and China. It has been 11 months since we had a market selloff that created enough fear to create the necessary fear to set up a significant market rally, it appears thats coming to an end.
I’d like to see the S&P 500 break through support at 1070 which will likely lead to another leg down to the 1030 area. In the meantime any bounces might best be served to add to hedges rather than taking on new long positions. Too soon to go long in my opinion but the pullback is creating a new series of opportunities for us. I’m estimating that this pullback could take us down to the 200 day moving average on the S&P 500 which is approximately 1020.
We continue to hold very high cash positions or hedges in the form of Inverse Market ETF’s.
Be careful out there
Brad