Over the past 20 years, April and November (see chart, below) are by far the best months of the year; hence the old adage, "Sell in May and go away".
Add to that piece of trivia, that the market has been at or near overbought for nearly six months. Add to that piece of trivia, that the market has been in a 'rip-your-face-off' bull trend for nearly a year and has been in a long-term bull trend since March 9, 2009... over 12 years.
To say that this current bull market is getting 'long-in-the-tooth' is not an overstatement.
And, let's not forget that we (and the rest of the world) have yet to pull out of the COVID-19 pandemic; not to mention that there are variants now that are surfacing that add one more 'unknown' to the health and well-being of the world's population and global economy.
In the middle of all of these unknowns, our political representatives in Washington seem to be so consumed with wokeness and political correctness that common sense doesn't exist in their self-absorbed, power-hungry mindsets. How did you like the way the market reacted last week to the planned policy announcement about radically raising the capital gains tax? This market acts like it wants to move higher, but is very jittery when politicians start making massive changes to tax structures and increased regulations.
Washington wants to give away trillions of dollars that it does not have and tax the people who do the most for creating jobs and a vibrant economy. Do we really have to go back through the same old, tired statistics that if you taxed everyone in the upper 1% at a rate of 100%, you would not raise enough taxable income to make a dent in the out-of-control spiraling debt this country has? But, I digress.
My job is this: Keep your money on the right side of the market and keep risk of downside loss as low as we possibly can.
The ONLY way to remove all risk from investing in the stock market is to not invest in the stock market. But, we all want to be invested in the stock market because that is still the single best place to generate a reasonable return at a reasonable level of risk.
There are many, many unknowns that we can identify. Those risks are quantifiable, for the most part and anticipatory. It is the unknowns that no one knows that we have to be ever vigilant about.
We know it is a fact that the current trend in the market (which is wildly bullish) will continue on that trend until it doesn't. By now, you should have read enough of these missives to know this truism by heart. We are looking for that "doesn't" event all the time.
And you know another truism: All bear markets start, by definition, at market tops. The next bear market will absolutely begin at a market top.
I do not know if the plans and policies of the current administration in Washington will help continue this bull market or kill it. There is an argument for both sides of that question.
We are totally prepared for either outcome. That is one of the primary reasons why clients hire us.
Some of our quantitative analysis data tells us that we are on a 5-step countdown to at least a 10% to 20% correction. 2 weeks ago, the analysis resulted in a DEFCON 5 condition... "DEFCON" is a play on the Defense Readiness Condition term used by our armed forces. I am using it as a "Stock Market Defense Readiness Condition" that tells us how aggressive we want to be in moving out of the market and into cash. As of this past Friday's close, it moved from DEFCON 5 to DEFCON 4... At DEFCON 1, the wheels fall off and the market 'could' be in a state of free-fall. We will begin looking for opportunities to capture profits and move to cash long before we get to DEFCON 1.
This DEFCON analysis is on-going continuously throughout every trading day. It is possible for the market to move from DEFCON 4 to DEFCON 1 abruptly. Unfortunately, there is no way to know the speed at which this move will be. But, the data point to an escalating trend in the direction of DEFCON 1. It 'could' be a slow, methodical, melt-down. It 'could' be a rip-your-face-off sell-off. Or, the market could move back to DEFCON 5 and then could move totally our of any DEFCON with the market moving back into a low(er) risk bullish trend.
But, while we are in a DEFCON situation and since we are fully invested (in all but the Diversified Income Strategy), we are raising stops as often as possible. Our goal is to get 100% of holdings with stops above our basis in order to (likely) lock in profits, while doing our best to avoid debilitating whipsaws.
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