Markets have been tentatively probing their way along, following Wednesday 2.5% route on fears of an Italian collapse and EU breakup.
Major indices remain above their key breakout levels — but just barely: The S&P500 at 1239 is a stone’s throw from its 1225 breakout level; The Dow Industrials at 11,893 are above its 11,625 breakout; and Nasdaq at 2625 is right on the cusp of its prior breakout 2620-ish.
The prior range was cleared, and now we are forming a thicket in this new range. I have no insight ads to how long this can go on for — a short while, or months.
One of the elements that could develop is that the fast part of the run up is over. Fears of a Euro contagion could spell the end for Michael Gayed’s Melt Up. Replacing that may be a period best described as a “Grind up.”
And I mean the term “Grind up” in both of its connotations. We can, after a brief period of consolidation, grind our way higher.
But my double entendre is intentional: By “Grind up,” those who are less than cautious may find themselves getting ground up by the markets. The volatility of a news driven market cycle is murderous on traders.
I do not like to dig in my heels, ever. My working assumption is that I will be wrong, frequently so, occasionally, spectacularly so. But until I see increasing risk factors, until some metric shows me a downside bias in markets, I am staying with my prior allocation (I raised my equity exposure to 80% from 50% some weeks back, by reducing cash).
My advice: Less is more. Stake out your position, determine your stops in advance, stay loose. Perhaps its time to extend your intended holding beyond the next 15 minutes –whether you are in cash or fixed income or equities. You are best served by avoiding the endless flip-flopping of the Risk On/Risk Off approach that seems to have become so dominant.
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