I’ve grown quite cautious and even bearish about the near-term here for the last week or so and today, the markets are rallying in my face.
Here’s what I expect for the near-term now that the Cyprus headlines have been digested.
The bulls and bears are both locked and loaded and getting more aggressive as we sit up here near the all-time highs for the S&P 500. The markets have tested these highs now several times and the more often they test it and can’t get through it, the more likely the bulls are going to be first to blink and sell. On the flipside, if the markets can push themselves to close above those all-time highs, the bears are likely going to be first to blink and cover. We could get a 5% move in a two or three day span when the market finally breaks whichever way it breaks at this all-time high pivot point.
I’ve got some SPY puts and some other puts and shorts built up to hedge our longs in case we get a big sell-off. Note that I’m not looking for outright “alpha” with these puts and shorts that I’ve recently built up. Alpha means that you’re looking for outright gains and outperformance with the trade. I’m just trying to hedge myself for a near-term sell-off. That means I’m likely to sit tight no matter what the market’s next move is, and I’ll miss out on some near-term gains if the markets do pop for their next move. The more trading-inclined of you could look to cover if we close at a new all-time S&P 500 and then re-short those same positions if the markets pop from there. But there’s a catch there too of course.
Feet-to-fire, I think even if we get a close above that all-time high, the markets could fake everybody out with a big intraday sell-off soon thereafter and then it’d a long way down to support.
Anyway, I’ve got a much more detailed post about managing your retirement and assets coming up in a bit. It’s so much harder and requires much more proactivity on your part than it has for the past two generations of Americans.