This article appeared at 8:04 a.m. EDT on RealMoney Oct. 7.
NEW YORK (RealMoney) -- Over the last few weeks and months, I have successfully adopted an opportunistic trading strategy, which I have described as "shorting/selling the rips and buying the dips. This strategy is appropriate in a trendless market without memory from day to day.
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It's not appropriate if we're entering a trending correction.
I have recently been of the view that the reward vs. risk in the U.S. stock market has been unattractive, so I have been more aggressive in shorting strength than in buying weakness.
I am now fearful that we are entering a period in which there are mounting market risks and a trending market (lower) has now become my baseline expectation.
As a result, I plan to stick with my shorts rather than trading my shorts.
I have long worried about the bull market in complacency that has seems to have fermented with the sharp rise in valuations in 2013 (in which the S&P 500 (SPY) rose by more than 30% while earnings climbed by only about 8%).
I see many peaks to consider.
Since early August I have highlighted numerous technical divergences (in the weakness of the Russell Index (IWM) , new highs, the cumulative advance/decline lines, etc.), the schmeissing of the high-yield market (often seen as a precursor to stock vulnerability) coupled with growing evidence of weakening global economic growth (posing a threat to consensus corporate profit forecasts) and other factors (including valuation, sentiment and geopolitics) suggesting that a downward trend and (potential) bear market might be in the early state of developing.
History also shows that rising volatility in foreign exchange markets may be consistent with bear markets. (A good analysis by Nautilus Research can be found here.)
Economic weakness in Europe has been a worrisome factor that I have steadily highlighted. As I have noted, the EU (and its banking system) face structural headwinds that are not being adequately addressed.