The Start of a New Year

RTM Capital Advisors strategies have been almost fully  invested in cash and calling for caution in the markets since the beginning of October. Furthermore, as our own Mark Ritchie II explained on the most recent “Skin in the Game” interview featured on Real Vision television that we would not become constructive until we saw an improvement in the underlying breadth and market sentiment. He also called for further short-term market downside and advised caution for those with long equity exposure.

Fast forward a few weeks and the markets have officially entered bear market territory as measured by all four of the major indices and we have now experienced one of the worst Decembers on record.  Starting this new year however, we have seen positive developments that may provide a light at the end of the bear tunnel.  In the most recent lows made on the day after Christmas, we saw a considerable rally which was well overdue and some positive market breadth. This was also confirmed with last Friday’s market action with more positive breadth and some notable volume.  Add to the fact that we had some of the largest readings of negative sentiment before year-end (as measured by put/call ratios) which may indicate a possible short-term bottom.

The challenge from here, is to pay careful attention as things continue to develop.  The first sign to watch for will be for the market to roll over quickly or to see an immediate distribution. All investors however, should keep in mind that bear markets on average take at least 6 months or so, to sort themselves out before good risk-adjusted equity returns can be realized.  While we may advise dipping a toe in for now, one still needs to remain somewhat passive before throwing all caution to the wind and getting aggressive on the long side of the market.