- Equities are in the topping region and the risk to reward skew now favors the short side.
- For investors looking to exit equities to re-enter from lower, now is the time. For those looking to hedge long equity exposure, now is the time.
- Consider your risk exposure and how it relates to your overall tolerance now, and don't wait until markets have dropped 10% to do so.
For some months now we have suggested that the US equities markets are topping and will soon embark on a 25-30% overall correction. Despite investors having pushed prices incrementally higher on the notion of continued Federal easing, nothing in our analysis has changed, and our overall downside target levels for the S&P, Dow, and NASDAQ are the same. The only thing that’s changed is that the drop will be from somewhat higher levels, this increasing the magnitude of the drop that will occur.
In this article I will discuss our expectations for both timing and price targets for the S&P 500 and Russell 2000. In addition, I will show our analysis of the Financial Select Sector SPDR Fund (XLF), which has been particularly weak.
If risk exposure is one of your considerations, then now is the time to consider exiting or reducing equity exposure, or minimally hedge. In truth we have been suggesting a topping of the general equity markets since earlier this year, counting the move up from the Christmas low as a retrace against the move down into the Christmas low, and now, with the benefit of hindsight, one could easily argue had they followed our analysis they would have gotten out early and missed this last move higher. My only reaction to this would be to reply by saying “true”. However, I would have to also point out that while equites are somewhat higher than we expected, the downside risk relative to the upside potential did not then, and certainly does not now warrant an over allocation of exposure to general equities. Click to continue reading this article on Seeking Alpha.
This article was originally published at Seeking Alpha.