Downside risk is extremely high
The market is far from capitulating here.
Our stock market can fall aggressively, and anyone ignoring the risks can see their wealth wiped out in a hurry.
I am not saying this to strike fear into anyone, but if you are blind to the risk you definitely should open your eyes. There is considerable downside risk based on a number of factors and nothing speaks louder than visualization.
The chart below is for the SPDR S&P 500 (SPY), but similar risks appear for the Dow (DIA), Nasdaq (QQQ), and Russell 2000 (IWM). In all instances, we are well off of the ideal shorting range, but the risks are exceptionally high. We short when everyone else is buying, that is the rule, and buy when the market capitulates, but the market is far from capitulating.
Furthermore, our macroeconomic work, "The Investment Rate," tells us the declines could be much worse than what is illustrated here. Be careful, be cautious, get a tight grasp on your risk controls, and remember that the stock prices of good companies fall when the market falls too, so there is no shelter except in proactive strategies that can make money in both directions.
MORE ON MSN MONEY
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
All hail the bull market, which ended the week with a big rally. But it also is starting to look a little like 1987, which suffered an epic blow-out.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.