Time to Be Cautious With Your IRA Trading

The worst enemy of this market, in my opinion, is investor complacency. Unfortunately, there are now a few signs that investors are becoming convinced that the market can only go up and that any small correction is a buying opportunity, and that's a sign for you to tread carefully in this market.

Interviews with money managers on CNBC yield almost universally bullish opinions, and most people, including me, are happy with the returns of their portfolios this year.

These are anecdotal observations and, so far, my long-term indicators have not shown any real deterioration. They remain bullish but, if the good times continue for a while longer, the outlook could become more problematic.

My intermediate-term indicators have, in fact, shown some weakness after the strength last week. Two of the three indicators remain neutral, but the third has now slipped into negative territory. Let's look at its chart now.

This is a chart of the ratio of volume in individual puts to individual calls on the CBOE, expressed as a 10-week moving average. This ratio appears in red with the S&P 500 in black. The green trend lines relate to the three-year average of this indicator and its standard deviations.

This is a contrary indicator that goes positive when speculators take extreme negative positions and vice versa. This indicator turned very bullish after the correction in late February/early March.

Now, though, it has continued to deteriorate and slipped into negative territory last week.

When my intermediate-term indicators begin to turn bearish, I start to take a more defensive position.

Accordingly, I have raised my target cash position to 15%. The actual cash position in my IRA at the end of last week was 11.5%. While I will not attempt to sell just to raise cash, I will hold additional cash if I sell a stock for some other reason.

S&P 500 VS. CBOE PUT/CALL

Click here for larger image.