Let's Be Careful Out There

This is NOT a market crash post.

As nerve-wracking as it’s been to navigate the recent triple-digit market moves, we haven’t seen a really bad day yet.

But we still might.

And the problem with violent moves is that they break things. Things like allocation models, risk management plans, margin requirements, trading platforms, and so on.

And when things break, market mechanics take over, often forcing individuals, funds, and institutions to do something they don’t want to do – sell indiscriminately – which further exasperates already extreme moves.

I don’t believe we are currently in a “market mechanics” type of environment, but it feels like we’re close.

Does this mean that a major crash is inevitable?

Absolutely not.

The market could as easily rally 20% from here as it could drop 20%.

I have no insights into what the market will do, and anyone who tells they do should be aggressively ignored.

But right now it feels we have the potential to make a move greater than we’ve seen in quite some time.

The type of move that won't respect EPS estimates, valuation models, or even my beloved technical analysis – and the type you don’t want to be on the wrong side of.

So, what should you do?

Well, you don’t have to do anything. Sometimes watching from the sidelines is the best play.

But, if you haven’t already been doing so, raising cash is not a bad idea.

What should you be wary of doing?

Trading leveraged products.

Trading on margin.

Buying at prices you’re not comfortable with.

Buying longer-term positions you’re not comfortable holding for a while – and possibly through more volatility.

Falling into the trap of thinking “this stock can’t go much lower.”

The purpose of this post is not to scare you, but to give you a heads up that we could potentially – and quickly - find ourselves in the type of market environment that can do you real harm if you’re not careful.

The good news is that it will not last.

Someday – maybe not too far away – things will settle down and we’ll get back to a more “normal” market environment.

But until that happens, be smart, be safe, and be careful out there.