As I wrote late last night I believe the downside risk now is far greater then the upside potential which in the short term I see as around 15%. It was late, so this is a little more of my thinking.
I am not selling any of my core holdings. However, today I sold off some of my trading positions into the strength of today’s rally. I am not buying anything new right now. I am in cash and my safe core holdings, so I am ready if we see a correction or a major move to the downside due to the continued weak economy.
All it would take for this drop to occur would be a change in investor sentiment. If investors wake up one morning and say they would rather pay 10x forward earnings instead of 15x due to the lack of growth in the economy, you could see a retest of the march 9 lows. I am not predicting this, since I only predict things when I am 99% or more sure as I was when I said 10 year treasuries would hit 4% and then sell off, which they did.
I cannot say whether we will retest the march lows. Perhaps in the future I will able to say, but not now. Therefore, I am well positioned and prepared for anything.