What to do for the upcoming market chaos

As I said yesterday, the market seems also suggesting a bearish long term trend for the next few months. Below is the monthly chart for S&P. While the stocks have been kept going up for months, its long term momentum indicators (RSI and MACD) are both trending down, suggesting a change of the direction to come. The chart is also showing up a megaphone shape with the trend line hitting the upper end of the megaphone. If the market turns down from here, it has a huge gap to fill to the downside given the size of the megaphone. Since this is a monthly chart, it won't occur in the short term but will take a few months to play out. This fits well into the timeframe for the market chaos post election as I outlined yesterday.   

So what am I doing now to be prepared for this potentially fairly severe crisis that is brewing and coming? Two major actions for my money:

- Accumulating cash! If you follow my blogs this year, you know what I did with my 401K money when the market crashed in Feb/Mar (see "The wheel seems falling off"). I was actively buying during the selloff for my 401K. It has certainly paid off dearly by now. But now I will be doing just the opposite, selling stock funds in my 401K to accumulate more cash to reach at least 30% in cash. This way, if the market indeed crashes for months post election, I will use the cash to actively buy when the situation stabilizes. I'm doing the same from my trading accounts to accumulate as much cash as possible. Of course, I usually don't touch my long term dividend stocks, for which short term fluctuations mean nothing to me. But for trading positions, it is the time to cut down and be wise to have more cash.  Sure I could be wrong and the market may simply jump higher from here. So I will pay some opportunistic cost by missing some gains without being in the market but to me it is much better to be safe than sorry, given how high the stake is right now!

- Buying protections. There are various ways to buy some protections such as inverse funds or put options. If you are savvy about options, there are different strategies that will allow you to set up some downside protection with much less cost or even cost-free with some special maneuver. I cannot go into details here but I do share a few ideas within my DW Family.😎

Regardless which side you are standing on, you better face the reality and be prepared for the very uncertain time period that may be unusually prolonged, which could trigger a huge market run to the downside. Considered you are warned!😵

  

Let me finish by sharing the view point by Lance Roberts regarding the current market conditions. 

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It's Still A "Sellable Rally." 

The reason we suggest selling any rally is because, until the pattern changes, the market  exhibiting all traits of a "topping process." 

• Weak participation
• Failure at long-term resistance
• Extreme bullish speculation
• Negative divergences in relative strength

We can show this in a long-term monthly chart.

Note that since 2009, whenever the monthly MACD "buy signal" was this elevated, it typically correlated to a short- to intermediate-term market peak. At each point, the "bullish story" was the same.

• Earnings are still strong
• Economic data suggests the economy is growing strongly
• It's a "Goldilocks Economy" (Fed hiking rates is bullish, Fed cutting rates are bullish.) 
• The Fed is remaining "accommodative." 

However, the primary warning signs to investors were also the same:

• A failure of the economy to live up to market expectations
• A rise in volatility
• A decline in bond yields.

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By the way, if you are interested in joining my DW investment group, we have set up a Telegram group. 

Here is the link for "DW  谈股论金": https://t.me/joinchat/SgYa_xNrjTNHk9cS51ke0A.    

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