Stock Market Risk is Elevated
I walked out the front door this morning with a cup of coffee to take the pup out and pick up my weekly Barron’s in the driveway.
When I got inside, I opened it up and BEHOLD!
Gracing the cover of Barron’s is:
“Dow 30,000 THE MARKET’S BIG RUN: Why stocks could vault past the milestone”
I haven’t read the article, as the cover is signal enough for me.
The Magazine cover indicator says that the cover story on the major business magazines is often a contrary indicator.
I’m sure they made a great case for higher stock prices.
The trend is your friend until it ends.
Markets can remain irrational longer than you expect, but there are times when markets overreact and the probability of a trend reversal becomes more and more likely.
This looks like one of those times.
I searched for other headlines:
I found a few.
And as a friend on Twitter pointed out, it’s way ahead of schedule. In 2017 Barron’s said :
“Next Stop Dow 30,000” and followed with “the Dow could surpass 30,000 by the year 2025.”
So far, Barron’s was right on that prediction. Below is the Dow price trend since the cover in 2017. But, consider the Dow is near 30,000 five years earlier than expected.
Notwithstanding the Dow is only about 2% from 30,000, the articles are calling for more uptrend. Sure, it’s possible this calm uptrend will continue to drift up without a volatility expansion, but it’s become much less likely as I see it.
I love me some good quiet uptrends, but all good things eventually come to an end.
In the case of equity market trends, these calm uptrends usually end when the majority least expect it.
That seems to be the case now.
Right now, the Dow Jones Industrial Average is signaling the higher likelihood of a volatility expansion. I say this because the Dow price trend has drifted above its average true range volatility channel and the Bollinger Band® lines plotted two standard deviations away from a 20-day simple moving average. These volatility measures visually illustrate volatility expansions and contractions and signal when a price trend moves outside it’s “normal” range. I call it “the normal noise of the market.” Periods of low volatility are often followed by volatility expansions.
My observations this week seem especially important because risk levels have become more elevated, yet individual investor sentiment is extremely optimistic.
As I’ve had very high exposure to stocks, I have now taken profits in our managed portfolios.
It’s a good time to evaluate portfolio risk levels for exposure to the possibility of loss and determine if you are comfortable with it.
For more information on my observations that risk is becoming elevated, read:
Questions, comments, need help? email me here.
Mike Shell is the Founder and Chief Investment Officer of Shell Capital Management, LLC, and the portfolio manager of ASYMMETRY® Global Tactical. Mike Shell and Shell Capital Management, LLC is a registered investment advisor in Florida, Tennessee, and Texas focused on asymmetric risk-reward and absolute return strategies and provides investment advice and portfolio management only to clients with a signed and executed investment management agreement. The observations shared on this website are for general information only and should not be construed as advice to buy or sell any security. Securities reflected are not intended to represent any client holdings or any recommendations made by the firm. Any opinions expressed may change as subsequent conditions change. Do not make any investment decisions based on such information as it is subject to change. Investing involves risk, including the potential loss of principal an investor must be willing to bear. Past performance is no guarantee of future results. All information and data are deemed reliable but is not guaranteed and should be independently verified. The presence of this website on the Internet shall in no direct or indirect way raise an implication that Shell Capital Management, LLC is offering to sell or soliciting to sell advisory services to residents of any state in which the firm is not registered as an investment advisor. The views and opinions expressed in ASYMMETRY® Observations are those of the authors and do not necessarily reflect a position of Shell Capital Management, LLC. The use of this website is subject to its terms and conditions.