I am likely to remain in a large cash position. The short side is not attractive to me because too many sentiment indicators are showing pessimism. I prefer to be short when there is excess optimism, which I don't believe to be the case.
I do not want to go long because I am not finding many stocks with attractive valuations. Earlier in the year many defensive stocks traded at attractive valuations but that is no longer the case. From a trading perspective we are not seeing extreme pessimism either.
My recent strategy of buying weakness and selling strength is likely to continue working but the situation in Europe is worrying me. It seems we are reaching the end of the road. Investors have been conditioned to use rumblings in Europe as buying opportunities. This has worked because there always has been a bailout. Europe is no longer united and without a united Europe there cannot be another bailout. I don't believe markets are prepared for a default which is an outcome I now expect.
Even if I am wrong about Europe, the fact that I am worried about it puts me at a disadvantage as I will get scared out of my positions every time there are rumblings. For these reasons I am choosing to remain largely in cash.