The markets had broken out to the upside, with the the Dow breaking through the 12,000 mark and the S&P 500 breaking through the 1,300 level. Given the intermarket volatility and the breakdown of recent market leaders these were a reassuring sign that the market could continue to drift higher. The hopes of a continued march higher were dashed however as the Egyptian protestors swelled in ranks and the situation intensified. In Egypt, protesters took to the streets by the thousands and the government rolled in tanks, sparking a flight to safety in markets worldwide. As I write, the Dow Jones Industrial Average futures are down an additional 169 points.
I have been on close guard of late, watching for a potential market correction. Bearish clues were emerging in the last few weeks. I was prepared to protect client accounts as needed. I did in fact sell the great majority of stock oriented holdings and a couple bond funds today. I also added a small amount of the gold etf (GLD) to the Inflation Hedges folio. Earlier in the month I reduced portfolio risk by liquidating higher risk assets, such as IWM and MDY (Small Cap & Mid Cap ETFs). As a result our portfolio declines have been minimized.
If these events are the catalyst for a correction, I would expect a correction of no more that 6 to 8%. For now, the longer term trend remains to the upside.
