It’s a bold move and one I do not take lightly, but I’ve spent the last couple of days partially “derisking” our managed portfolios. This is never fun. There are numerous considerations such as taxes and how/when to get back in but when the data presented clearly says its time, a prudent risk manager must act to protect their clients’ assets and allow them to comfortably sleep at night.
To be clear, I do not believe a full-on collapse in the financial markets is coming as there are a lot of positives out there such as low interest rates, declining COVID cases, supply chain healing, etc., but the environment appears to be ripe for a swift revaluation and I’m more comfortable at this time missing out on potential short-term gains to avoid the pain of potential short-term losses.
In my January update, I wrote:
“…a couple of companies reported seeing margin compression in Q421 earnings (i.e. the higher price of goods eating into profits) and derisking ensued. Over the weekend, tensions with Russia escalated over the Ukraine so it seems the negative news just keeps flowing.”
Since, then we got my expected bounce in the equity markets, but it failed to materialize and the Russia~Ukraine situation has escalated further creating a lot of uncertainty and aiding the already high inflationary pressures. I do not believe anyone can predict Putin’s next move with any certainty and that next move will materially impact markets. Yesterday, NATO began imposing sanctions and today, the Ukraine government websites were attacked. This does not have the appearance of one backing down…
From a technical perspective, the markets have lost their internal positive energy. Advancing – Declining Issues and their respective volume have been clearly trending downward since we turned the page on the calendar and New 52 week Lows have outpaced New 52 week Highs. By my proprietary measurements, intermediate term momentum has turned negative in concert with investor/advisor sentiment and many of our long term trendlines have been violated recently or are at risk of doing so any day now. Said another way, the wind has been taken away from the market sails for the time being.
NYSE Advancing – Declining Volume Line
NYSE 52 Week New High – New Lows Index (top) SPDR S&P 500 ETF (Bottom)
SPDR S&P 500 ETF with my trendlines
To repeat myself, I do not believe we are on the brink of a full-on market collapse but rather feel it’s prudent to take a little risk off the table to see what happens next. Sometimes the best course of action is to just sit tight and sleep well. Whether this recent dip is the cycle low is impossible to be known at this time and the markets could accelerate higher or lower from here, but when the environment looks good to redeploy that cash, we will be ready.
Should you wish to discuss anything written in these articles, our present strategy, or just touch base to see how things are going, please don’t hesitate to reach out to our office @ 843-651-2030. Also, feel free to share these newsletters with your friends and family via email and visit us on our website at www.sabowealth.com or www.facebook.com/sabowealth.
Important Disclosures: Past performance is not a guarantee of future results. The statements contained herein are solely based upon the opinions of Edward J. Sabo and the data available at the time of publication of this report, and there is no assurance that any predicted or implied results will actually occur. Information was obtained from third-party sources, which are believed to be reliable, but are not guaranteed as to their accuracy or completeness.