With so much uncertainty out there it makes little sense to swim against the tide, and a big tide it is. Some strong sentiment numbers were released last week from AAII, and it was showing quite a bit of bearish sentiment. In fact, the most bears in this survey in over a year. That's something, especially with markets near all time highs. Back in 2020 when the bearish sentiment dominated, the markets were reeling after being inflicted with the biggest monthly drop in history.
This is a red flag. Further, new lows are starting to make their way into the picture, and breadth is also a concern.
Much has been said about there not having been a 5% correction since November 2020, a span of over 200 days. That worries many who are long and without some protection or cash. While the market continues to confound even the most logical of traders/investors, the fact remains little fear of a correction as it relates to price action.
That could change at any point, and recently we saw a 2% pullback with some heightened fear (volatility rose up about 20% or so). Most are waiting for September to be over, turn the calendar from the most dismal of months. October doesn't promise much in terms of history, often seen as the month of crashes but also a bear killer.
Awareness and preparation are two of the best traits for unstable markets such as this one. What would you do if you went out camping or hiking in a remote area? Ready for anything, aware of your surroundings and prepared for danger. It's no different in trading markets.
Bottom line, take a more cautionary approach. Plenty of cash, reduced positions and sizes, some put protection. If wrong, then the market will tell you and it'll be time to be more aggressive. For now, only the bold will take bigger risks and probably regret it in the end. Don't let it be you.