My view has been, and continues to be, that the market's reward vs. risk appears unattractive for the remainder of this year.
Unlike others, I don't approach my investment conclusion with self-confidence. While I am explicit in the reasons for my caution ("Sell Strength"), these are my strong views. But I may be wrong, as the only certainty is the lack of certainty.
That is why I always qualify my views and average into positions:
1.A possible market bounce is possible at any time, as the market's character has changed.
2.We are in a market without memory from day to day. Mr. Market will be increasingly volatile and unpredictable. As such, opportunistic trading may trump buy-and-hold investing.
3.A rally should be sold, as expressed in "Sell Strength." (Short-selling is not for the average person, but most should consider erring on the side of conservatism). As you know I'll use the TZA Direxion Inverse ETF sporadically to hedge our long investments and try to capitalize on when I view the market appears to be extended and ripe for a selloff.
4.The market's internals have been deteriorating for months (a constant theme of mine). The accumulated advance/decline line (breadth) has been weakening, the Russell 2000 Index's drop has presaged today's schmeissing and the number of new highs has contracted.
5.The erosion in the high-yield market is an important and negative development.
6.The world has grown increasingly unsafe. This is not likely to change for years.
7.The market's multi-year advance has benefited from the rising role of high-frequency trading and momentum-based strategies (quantum funds which are just run by computer programs). A downturn could have the opposite effect in a herd-dominated investor base.
8.Global economic growth is moderating and the European economies are problematic. In its extreme, the leveraged European banks represent systemic risk.
9.Before yesterdays schmeissing, few investors envisioned the possibility of a major market correction.
10.Our political leaders have failed us. The burden of growth now lies on monetary policy, which is losing its effectiveness. The Fed's zero interest-rate policy (ZIRP) is not a permanent condition.
Adding up these 10 conditions, I conclude that most investors should maintain above-average cash reserves.
