Repositioning Before the Selloff

Yesterday morning, I warned clients to use any lift to sell equities. CNBC reported on the call in the afternoon, and many readers have asked for a more detailed explanation.

Last week the market became so oversold that a corrective bounce was due. We saw that move begin in Monday's rally. But don't get too excited yet: I expect this bounce to last a week or so -- two at most -- before the markets start heading south again in a selloff that I expect to last until early summer, and bring the Dow down to the 8,800 to 9,000 level.

As such, I have been advising clients to use any lift as an opportunity to exit most of their long positions. In particular, I have been exhorting managers to sell cyclical, rate-sensitive and high-beta holdings.

I have aggressively sold equities, and I am now about 50% cash. I expect to be in even more cash by next week. If some of the major oils come down enough, I will selectively add to those positions. I'd like to see Interoil (IOC - commentary - Cramer's Take) at $32-$34 prior to re-entry. I'm also looking for an advantageous entry into gold, including the ETF/Gold Trust (GLD - commentary - Cramer's Take) -- anywhere between $40-$43. Finally, I am looking for the recent rate rally to sputter out. I am considering buying the iShares Lehman 20-Year-Plus Treasury Bond Fund (TLT - commentary - Cramer's Take). An entry between $84-$88 is technically warranted, and yields 4.6%. It's as good a place to hide as any.

Individual investors should also take advantage of any better prices to aggressively sell positions that meet those qualifications. I'd also dump individual stocks that have not been behaving well. And as I wrote last week, it is crucial for individual investors to eliminate long margin exposure.

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Barry Ritholtz is chief market strategist for Maxim Group, where his research and market analysis are used by the firm's portfolio managers and clients in the U.S., Europe and Japan. He also publishes The Big Picture, his macro perspectives on the economy and geopolitics, entertainment and technology industries, and is a member of the board of directors of Burst.com, a streaming media software company. At the time of publication, Ritholtz had no position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Ritholtz appreciates your feedback and invites you to send it to [e-mail].