Is the Market Running Out of Steam? 

Exactly three weeks ago, I wrote a piece titled, ‘Is a Market Reversal Coming?’, in which I talked about the folly of making market predictions and my accuracy when I make such predictions.

I openly admitted to the fact that my predictive capability was 50/50 at best, since I get it wrong as much as I get it right.

This has been proven once again, where the market continued to surge upwards from 2040 when this piece was published on 17th March, to a recent year high of 2075, before declining in the past couple of days back to 2045.

Market analysis is based on probabilities, and I stressed that I was concerned about the market struggling to break through the technical resistance of 2100, with the market having already become overbought over the past few weeks since mid-February.

In other words, there was a higher probability which the market would fall back to January and February lows, or almost 10%, compared to a possible gain from trading of just 4% before it reaches the 2100 resistance barrier again. (See attached chart)

The risk to reward ratio simply was not there to trade the bullish side.

SPX 2016-04-06_14-15-00

With the market falling back towards the level of three weeks ago, where is the market heading next?

Again, I have no idea, but I do believe there is a higher probability at least in the short-term, of a further market pull-back, from current technical over-bought levels.

Personally, I have begun shorting the S&P500 index to hedge our long term exposures for our managed funds, even though we hold over 70% in cash, waiting for a market pull back to take advantage of.

Only time will tell if this is the right move based on probability.

I would always rather be safe, than take silly risks when there is no need to in this volatile environment.

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