A Thanksgiving Bear?

First off, let me just say that I have many great memories of past Thanksgiving celebrations. This is almost a sacred day of family gathering and feasting for me and my loved ones. I am looking forward to more of the same this year. Let me also wish you and your family the finest of times.

I also have fond memories this time of year of big stock market rallies around turkey day. Historically, we usually are about four weeks into the growth season by now, and most often this growth period has come after a significant low in stocks during the September-October lull.

Well, things didn’t quite play out to the usual script this season. The lows this year took place in August, and that lull was followed by a 10% rally to new highs. We then suffered through an 8% decline in stocks, and that was after two Fed rate cuts. This is almost an unheard of scenario on Wall Street.

So, what is going on? The way I see it, the markets are telling us something very important.

I’m sure you have heard me talk about how the stock market is a predictive indicator of the economy. It anticipates things. This is why the market goes up when economic news is bad.

Right now, the market is telling us that there still is a lot of uncertainty ahead. A 10% correction in stocks is a normal thing in a bull market and we now are on the verge of the first 10% correction in six years (see the chart above).

If the market breaks down from here and falls below 1,405 on the S&P 500, there’s a good chance of a more damaging, dare I say, bear market ahead.

My advice to you now, other than to enjoy the holiday, is to put your prevent defense on the field. That means you should be carrying high levels of cash in your portfolios, and you should have the patience to wait for the next big buying opportunity.

When the waters calm and when it’s safe to go back in, the market’s price action will let you know.

If you want to find out how to keep your money safe during this turbulent time in stocks, I invite you to check out my Successful Investing newsletter.

Right now, my Successful Investing subscribers have a huge cash position, and we largely have avoided the sell off of the past several weeks. For more about how you can avoid the current bout of selling, just click here.

Once again, happy Thankgiving!