The HCM-BuyLine® has weakened and we are monitoring to see if a change in trend is imminent. Growth stocks, technology, semiconductors, small caps, and just about everything has dropped at a fast pace since the start of the year. A relief rally is probably pretty close at hand, but the question is will it hold, or is this the start of a downtrend? On a short-term basis we are oversold, and a breach of the HCM-BuyLine® would indicate a more dire outlook. As everyone knows, when the market closes 3.5% below the HCM-BuyLine® we systematically start to reduce risk and wait for the market to wash itself out. Drawdowns and pull backs are part of the game, and while they are never fun, they are inevitable.
Inflation and rising rates are putting a lot of pressure on the markets. Rates will go up this year and bonds are in for a nasty run for the foreseeable future. There are parts of the market that have held up well, but when the trend changes the market usually sees every asset class go down. Trying to find a safe investment will be a challenge. Real estate will not like higher rates, utilities will be under pressure and bonds are going to get beaten up, so as unattractive as cash is, that will be the place to sit and wait.
But for now, patience and controlling emotions is what we need to concentrate on. Even if we are forced to reduce exposure remember there is a lot of road left in 2022.