There no “flux”. It’s a cyclic bull inside secular bear market. Yeah, I know “wt…”!
The secular trend (aka the channel) is the very long term trend. It’s bearish. It’s generally accepted that that long term trend is to lower valuations. PEs are at record highs. Oil is creeping back up. The Chinese are out of balance in trade. AND, the gooferment has several structural financial problems — out of balance budget, mounting debt, war costs, inflation, medicare costs escalating, medicare’s drug benefit, social security is unfunded, government pensions, government benefits — that make for bad news! The secular trend is evidenced by lower highs and lower lows. The cyclic trend is bullish(aka were going up inside the channel). There is no evidence of “bad news”. Business still are showing profits. Albeit slowing, but still profits. The structure of the economy seems to be good enough to support the normal course of business.
So, we are looking at is oscillation inside a channel that is sloped down. Watch the charts as the daily results bounce between the boundaries.
What should someone do?
Depends upon your age, and what kind of money it is.
If we are talking tax-deffered retirement money for a young person, then you want to be fully diversified, fully advantaged, and tactically shifting the mix as it seems fitting. If we are talking non-tax-deffered, then one has to be less careful (i.e., losses are deductible). A non-market-timer, buy and hold, average joe should be really careful in this environment. We’re going down. The only question is how far, how fast, and when.
My personal strategy, and I’m an old fart, that doesn’t have the ten years for the market to come back, is to in April 15th, take a conservative position with ½ maybe even more of ALL retirement and non-retirement money. I am expecting that all the IRA contributions to support the market thru April. Like deal or nodeal, I like to look at the upside versus the downside. With the S&P, and most metrics at near records, with PEs in the stratosphere, I postulate ex-cathedra from my belly button, is upside 1500 from 1350 and downside 900 from 1350. Numbers are approximate. That’s 11% up and 33% down.
So, I’d be very careful about taking a big loss in a retirement account.
In tax-protected accounts, I’m moving half or more to cash in April.
In taxable account, I’m confused. If I sell to move to cash, I’ll have to pay taxes ~25%. If the downside is 33%, then the loss would be 8%. I’m much more tempted to roll the dice. I’m reviewing each holding and trying read the entrails of the chickens to determine how the individual will fare in the downdraft.
Hopefull, if you’ve read my book,
https://reinkefj.wordpress.com/2006/06/30/muny-mental-lock-in-or-training-elephants/
then there is no single investment that will put a hole below the waterline.
I try to think about pyramid. Emergency fund and savings should be untouched by any down draft in the market.
If you’re efund and savings are defective, then that’s a different problem.
Reinke Faces Life 