Now that I've reduced my equity exposure - specifically from approximately 90% to 45% - I wanted to reflect on what just happened and make some bold predictions about what could happen.
I'm pleased that my prediction from a year ago (specifically on 5/26/2018) that the market might peak in May of 2019 looks like it might turn out to be correct -- only time will tell if this month's high proves to be a medium or long-term top. I'm also pleased that my indicator kept me in the market since August of 2016 when I wrote in my blog that I was "all in." It was at that time that I increased my equity exposure from 50% to about 90%. The S&P gained 27% from that time until today. Currently, my 45% equity exposure is comprised of about 30 high dividend-growth stocks.
I wouldn't be surprised if the market attempts to rally at this point -- specifically, it might try to bounce off the 200 day moving average; it might try to fill the "gap down" at 2850; and it might try to test the 50 day moving average at 2870. The market never moves in a straight line and it wouldn't disappoint me if this happens. In fact, if it does AND IF my macro indicator continues to go down AND IF a RSI negative divergence forms, I might reduce my equity exposure further by shorting the market. More on this possibility in upcoming blog posts.
As far as my next bold prediction, I believe that a negative bias might be in force for as much as 1 year (for as long as my indicator continues to go down). As I mentioned in my prior post, identifying market bottoms are usually harder than tops. I think patience will be rewarded and I'm looking forward to buying attractive tech stocks for the "alpha" component of my portfolio and re-buying dividend stocks at depressed levels to increase my portfolio's yield on cost.
Stay tuned.....
Follow signals from the Prophet4Traders system to identify turning points in the U.S. stock market
The purpose of this site is to share results of a trading system that I use for identifying both long-term and short-term trading opportunities. I take the time to do this because of my passion for investing and helping others succeed. The system helped me avoid the "Crash of 2007/2008" and every major correction since then. The cornerstone of my trading system are analyses of market liquidity to gauge longer-term market sentiment and equity and index options (put/call ratios) to identify short-term entry and exits.
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