Lightening Up on Small Caps, Emerging Markets

As I noted last night, with a deal in place, the stock futures were strongly higher. I also noted that the decision not to sell into the weakness last week was so obvious it felt as if it was wrong.

But the strong gap up and the lack of follow through is concerning. Intraday reversals such as this do not give one much confidence that a new leg upwards is beginning. If anything, it is supportive of a potential topping process for the broader market.

As such, we lightened up quite a bit on a few asset classes in our core allocation portfolios now 23.5% cash. Emerging markets, smaller cap, technology stocks, and some of the most aggressive traders were worthy jettisons today.

We still have substantial US exposure, bonds, commodities, big cap and value. I’d like to wait and see how things develop before pushing more positions out the door, given the decelerating economy and the sloppy trading in equities, the risk is clearly to the downside.

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