There is no secret to it, really. We are in an absolute edgeless environment that deserves less of your attention than you are presently giving it. In fact, I shouldn't even be writing this article to give this environment credence.
If you go back to September of last year, you will find most of the major averages in pretty much the same spot that they closed at today. Meaning that for the past four months the markets have done absolutely nothing. It has been a constant back and forth between earnings worries, macro fear, interest rate hysteria and an occasional global pandemic thrown in for good measure when the pity party starts slowing down a bit.
I'm not here to dissect the indistinguishable and abstract, as is the norm in the modern day finance. Let's leave the professorial sermons to the professors of finance, of which the news pages, blogs and websites are filled the brim. My sole purpose is to make money for my clients and for myself. To increase capital as opposed to propagate illusory facts that serve no purpose other than to complicate simple situations.
With respect to making money, the current macro-market situation is extremely simple: We haven't moved in four months as previously stated. The major averages are down less than 5% from their recent highs. In the meanwhile, pessimism as measured by long-term moving averages of the put/call ratio is higher than at any point in 2013, nearing the highs of 2012, below the levels of European crisis of 2011 and nearly matching the highs of 2010. Simply put, the only time the market has been demonstrably more pessimistic than this current moment was during the European crisis of 2011.
Here is the chart of the combined put/call ratio using the 20 and 100 day moving averages only. Notice the level of the 100 day moving average in red:
What does this mean for investors? Any breakdown of the recent choppy, sideways ranges for the market averages will not result in sustainable downside pressure. At worst, the averages will move back into the ranges we have become accustomed to over the past few months.
At best, a breakdown in the recent ranges will develop a swelling of pessimism great enough to put in a sustainable bottom from which the markets can rally.
In any case, this is not the time, place or psychology that leads to 10%+ declines, eventually leading to the lopping off of investor limbs.
It's a situation where the best course of action remains little to no action. Point is that the desire to become overly-defensive at this juncture is equally as inharmonious as the desire to become overly-offensive in allocation.
The best course of action remains the bare minimum, with special attention to disproportionately large losing positions. Portfolio management 101 regardless of market environment.
