Market Enters Maximum Risk Zone as Valuations Roll Over

TopdownCharts
04-02

Zooming out from the day-to-day developments, it’s useful to keep in mind the market cycle conceptual model.

The reason we want to respect risk in this type of juncture is that the stockmarket is stumbling and rolling over from expensive levels — this is the zone of maximum risk.

It’s entirely possible that we end up getting enough of a reset (in sentiment, valuations, positioning, and maybe even policy too) to engineer a short/sharp correction and resumption of the bull market… but given the background setup described and what we understand about market cycles, it would pay to be pragmatic about things (balancing the desire for maximum gains from participating in rebounds vs diversification and defense against the potential for further downside).

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