While the natural human reaction to the market’s steep decline today is to sell based on fear, the current profile of the S&P 500 relative to history tells us some patience may be in order. Most people make emotional decisions in the stock market. Most people do not make money in stocks. We have to be willing to think independently and make decisions based on facts, instead of emotions.
The CCM 80-20 Correction Index is telling us to remain defensive, but to also keep an open mind relative to where stocks may be in three-to-six months. In the tables below, high numbers indicate more favorable conditions in terms of historical risk vs. reward.
The figures in the tables are as of Monday’s market close.
The market’s current profile, from a positive perspective, means little unless we see evidence starting to accumulate which points to a probable change in the short-term trend. Said another way, until we see evidence to the contrary, we need to maintain a defensive bias. Once the evidence begins to shift, we have to look at the market objectively to make the best allocation decisions possible.