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Stocks and bonds are fading. Will it get worse, or will something save them?
I’ve seen this before, and it doesn’t end well. But maybe this time is different. Stocks and bonds have been fading lower all year, and the stock market has been slip-sliding away since late March. Yet as someone who analyzes price trends for a living, and has for decades, the word I can use to describe the current goings-on is not dramatic. The word is “orderly.” Almost like clockwork, the S&P 500 opens and moves higher, and then something happens that has been one of those things you notice and can never forget.
For me, that’s the persistent pattern of the market indexes losing about 0.5% from their daily peaks through the close of business at 4pm Eastern Time. This has been a tell-tale sign over the years. A sign of what? That risk is high, increasing, yet no one really cares that much…until something bigger occurs.
All of this is to say that between the patterns I stare at daily in the broad market, interest rates ticking higher steadily, earnings not yet providing the usual spark and the simple fact that I cannot name a single stock I’d buy with “both hands” at the moment (and oh, I’ve looked!), this is an “on-guard” moment for me. This is a high risk period, and that usually means one of 2 things: a sharper decline is coming, or a giant, perhaps temporary, sign of relief is in the offing. In the latter case, we could see the old guard (FAANG stocks) rally strongly in a flash.
But I’m not sitting around waiting for that. What I am doing is limiting my equity exposure, and using hedges that not only can defend if this gets worse, but can soon after convert into vehicles to “exploit” the downward panic, if it indeed sets in. That, in a microcosm, is what my offense-defense approach is all about.