Managing Your Paper Assets at this Point in the Cycle
Your first decision is whether you want to manage these assets or let the market manage them.
If you do decide to manage those assets then you need to decide whether you see evidence of a macro top in these assets or you view 10 percent sell offs as buying opportunities. In the artificial markets created by the FED since 2009, buying those sell offs has worked well. Now is a moment of decision in terms of management style for a couple of reasons:
1) Macro technical market indicators have turned down;
2) And the FED, even though their inflation targets are not being attained, is feeling that this is an opportunity to raise rates so that they will have ammo for the next downturn, whenever that occurs.
If you decide that you want to move with the Macro Top scenario then you are looking at what level to sell off these assets. Classical market analysis points to market bounces of between 38 and 62 percent of prior moves. The recent move in the S&P was a decline of 268 points, 2135 down to 1867. That would calculate to a bounce of between 1969 and 2033 with a midpoint of 1993. So far we have seen a bounce to 1993 on 8/28/15, then a reaction, followed by today’s move to 1975.
Bottomline, with the move on 8/28/15, following this bounce plan, one would be down to a 50 percent position, a subsequent rally above that level will entail further lightening up, with no position being the end result at 2033.