A few strategists whose opinion I value seem to be in agreement that the market is due for a rest but not a major top. Last night I posted a video of Tom Demark, who has made some pretty good against the grain calls in the past year. He is looking for a 5% correction but not a collapse. In his latest weekly missive Jeff Saut takes a similar stance saying that he is cautious but not bearish. He says he could see a 5% correction or he could see a sideways correction but he does not see a complete collapse. Tony Dwyer of Collins Stewart is looking for a 4% correction before a larger 10% gain.
My view is similar to these strategists in that I too believe that we are unlikely to collapse but are likely to correct somewhat. There are imbalances out there and any one can creep up at anytime so I am not writing off the possibility of a bigger decline, but I don't believe one is imminent. Depending on one's time frame this can be taken in different ways. I would like to avoid a 5% decline if I could and am being more aggressive about hedging and cutting market exposure. I do consider the longer term which is why I have been reluctant to go net short. Additionally, I believe that the market is roughly fairly valued at current levels. To an investor with a longer time horizon a 5% correction might not matter.
I would grow more bullish on the market if we did get some sort of a correction. If we traded sideways through the middle of March I would likely take some long trading positions for the seasonally strong late March to mid-April period. At current levels I believe that one risks a 5% correction and the outside possibility of a systemic event.