Yellow Lights

Being bullish and being observant are not mutually exclusive terms.  I’ve been vocally and publicly bullish on this tape since early fall but in my opinion, there are now yellow lights flashing everywhere.

I write these words not with the intention of offering any advice, but to let you in on my thinking.

In the core model portfolio I run for clients, considered to be a “conservative growth” model, we are now holding around 20% cash.  I can afford to do that in a bull market because there are some very aggressive holdings on the other side of the model.

If the market’s going to go up 6.5% a month in perpetuity with zero volatility, then I am woefully underinvested (and should in fact be leveraged).  I do not believe that this will be the case.  I am not merely pontificating about the potential for a correction in Q1, I am actually preparing for one.  To me, a sharp move down at some point soon would be just what the market needs – though I hold very loose convictions as to what the timing, severity and proximate cause of a correction will be.

Technically speaking, the uptrend for the S&P 500 remains intact, breadth is positive as is the rolling boil of new 52 week highs underpinning the action across virtually all industry groups.  Can’t hate a tape in which oils and retailers can hold hands and ascend the mountain together.  But there are some anecdotal signs and squishier datapoints that have me concerned.

These include…

  • Hooray for Web 2.0 (which I’m bullish on) but have things gotten just a bit carried away?  $70 billion for Facebook 15 months ahead of its IPO?  And did the Cheezburger Network (LOLCats, Failpics etc) really just close a $30 million round of funding?  Umm, yes, inexplicably it did.  Frothfail.
  • Sentiment measures are running extremely hot.  Granted, this has been the case for awhile but at some point, someone’s got to blush just a little bit.  For example, the latest Investor’s Intelligence survey is at around 58% bullish.  Readings over 50% are considered “extreme”, we’ve been above 50% on this survey since mid-October.
  • Finally, I’ll drag the VIX, a measure of volatility, into this discussion.  If the VIX were a now-grown child star from the 80’s, this would be the phase where it would start robbing liquor stores and removing its pants for twenties in strangers’ cars – rock bottom.  The VIX just closed at 15.46 on Friday, the lowest level since July 19th 2007.  If that date sounds familiar, it was basically the top of the S&P 500, excluding one last gasp of bullishness in October of that same year before the crash began.

The yellow lights have been flashing for a little while now…but this weekend they began flashing much more brightly and with an increasing urgency to this observer.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. w88 commented on Sep 21

    … [Trackback]

    […] Find More here to that Topic: thereformedbroker.com/2011/01/18/yellow-lights/ […]

  2. pinewswire commented on Sep 22

    … [Trackback]

    […] Read More on on that Topic: thereformedbroker.com/2011/01/18/yellow-lights/ […]

  3. bitcoin era commented on Sep 30

    … [Trackback]

    […] Read More on to that Topic: thereformedbroker.com/2011/01/18/yellow-lights/ […]

  4. td easyweb online commented on Dec 15

    … [Trackback]

    […] Find More Info here to that Topic: thereformedbroker.com/2011/01/18/yellow-lights/ […]

  5. CI-CD commented on Dec 20

    … [Trackback]

    […] Find More here on that Topic: thereformedbroker.com/2011/01/18/yellow-lights/ […]

  6. fake all breitling watches commented on Dec 30

    … [Trackback]

    […] Read More here on that Topic: thereformedbroker.com/2011/01/18/yellow-lights/ […]

  7. DevOps solutions commented on Jan 12

    … [Trackback]

    […] Here you will find 88031 more Information to that Topic: thereformedbroker.com/2011/01/18/yellow-lights/ […]

  8. buy car australia commented on Jan 15

    … [Trackback]

    […] Read More to that Topic: thereformedbroker.com/2011/01/18/yellow-lights/ […]

  9. Regression Testing commented on Jan 18

    … [Trackback]

    […] Read More to that Topic: thereformedbroker.com/2011/01/18/yellow-lights/ […]