I learned long ago not to overthink market action. It would be easy to look at the current trade spat with China and forecast a positive outcome for American businesses and global trade. WIth a $450B deficit, we truly do hold the chips at the proverbial poker table; however as you know, the trade chips we’re playing with aren’t the same chips China is playing with, and the market is clearly concerned about the $1-trillion in bonds and the potential ramifications of a new round of selling. It is for this reason, I believe our markets are under pressure. Unfortunately, this pressure doesn’t quite feel like the healthy consolidation type; but, rather, the ‘bear-market, topping’ type.
It is for this reason that we continue to respect stops, take sales when and where needed, and follow our plan accordingly. Over the last few years, we’ve seen similar episodes and each time we’ve found it prudent to follow this methodical strategy rather than a helter-skelter sell-all mindset.
Last week, our final piece of the FXI (China index) hit our exit level and we subsequently sold this, raising our cash position in our aggressive accounts to over 15%. Today, it looks as if we are being stopped on financial positions XLF, GS and the remaining share of JPM. It is unfortunate to see some of these positions go. JPM, for example, was a position we entered in August 2016. It has been a profitable investment for those who have had it in their managed portfolios since our entry. As you know, I have admired the institutional leadership of Jamie Dimon, and all that he has done to steer the ship of one of America’s leading banks. It will be a position that I will miss.
So far, the regional banks have held relatively well, and names like KRE, our regional baking index and BB&T (BBT), have yet to meander close to their respective stop levels. They will be kept on close watch; and, if they need to be sold, will be sold.
I have no idea whether we’re finally seeing the long-awaited top in the bull market that began in 2009, but I will say that my concern for the current market is rooted within the action of the financial sector. In my opinion, this remains the most important group in the US Stock market and when it starts to flash warning signs, the action cannot be taken lightly at all.
We’ve had quite the bull market since the bottom in 2009. The action indicates that we now have the potential to go through some bearish pullbacks, which I suspect will get uglier and scarier before they are done. We will exercise patience in our methodology; and, should positions warrant, we will continue to take the necessary steps to move out.