The market is at a key junction right now.
Worries about a recession are building and market participants wonder if the central banks have sufficient ammunition to extend the business cycle. Trade issues are adding complexity and many market pundits believe that the long-running uptrend is about to end.
I have no idea what is going to happen in the months ahead but the current price action reflects some of these difficulties and suggests that there could be further downside. While it is possible that the corrective action ends quickly and the market regains its momentum into the end of the year, no one can predict that at this point.
What I see right now is that the indices are in a trading range. The S&P 500 has been turned back from recent highs several times but is still holding above recent lows. Amid the recent China trade turmoil and the market's reaction to failing bond yields, the risk to the downside is higher than it has been in a while.
Since many of the individual stocks I follow have weakened technically I've sold down positions and have raised a large amount of cash. Currently, I have about 70% cash. I'll be happy to buy some individual stocks into the end of the year but overall conditions just aren't good enough to put much money at risk.
This is one of the big differences between a trader and an investor. I don't care if a company is a good one or not. I care about the right price action. I'm not going to buy a stock that is acting poorly just because I think it's a "good" company. It has to prove itself with good price action and there just isn't much of it out there right now.
I prefer to be a stock-picker rather than a market timer but there isn't much I want to buy so I have no choice but to be more of a timer until conditions change.
Currently, I'm trying to trade the indices within the trading range and my bias is to look for the range to fail to the downside before it finds support and can start to trend back up.
If I'm wrong and the market starts to trend up from here I'll cut back my index shorts and look for more individual stocks to buy. However, I see no signs of that happening right now.
I'm optimistic about the opportunities that will develop but I'm going to let the market tell me when the time is right to put more money at risk. My view right now is that the downside is the path of least resistance.