Over the last several months, the market has been in a broader consolidation trend that has defied the underlying deterioration in overall price action. It is important to remember that the “price” of the market on a daily, weekly, monthly or even a yearly basis is a picture into the “psychology” of the “herd” of market participants that make up the market.
That psychology, as I have shown this many times in the past with the following chart, explains why price often become dislodged from fundamental realities for longer than rational logic would dictate.
All three sections of this week’s missive are going to be focused on the current market action as it relates to current portfolio allocations.
A Review Of Where We’ve Been
Apparently, judging by the number of emails, the recent volatility in the stock and bond markets has finally awoken many complacent investors. To wit:
“Stocks and bonds are both declining in value at the same time. What should I do to protect my portfolio as I am bleeding money over the last couple of weeks?”
First, had you been following this missive over the last few months your portfolio should actually be in pretty good shape given the repeated advice to weed, prune and harvest the portfolio.
However, the decline in stock prices as of late is a “real” issue. The reason that I say it is the “real” issue is because the decline is barely perceivable when put into relative context of the market advance.
