S&P 500: Risk Off Or Buy The Dip?
Risk Off Criteria 3/3
Week 4: Market Health Check
R&R: Risk Signals & Reflection
Last Sunday’s letter emphasized caution, with two out of three risk-off signals activated. By Wednesday, the fifth risk-off alarm of 2024 was triggered, prompting an out-of-cycle note to highlight the elevated risk conditions. On Thursday, the market traded near its lows, and while Friday began with further breakdowns, a late-day recovery helped markets end the week on a moderate note.
This year, interpreting the market’s risk-on versus risk-off environment has been notably challenging. Looking solely at 2024, one might argue that my risk management method has functioned more as a "buy the dip" signal than a risk alarm. The majority of hedging strategies this year have proven unsuccessful. While four of the five alarm calls did precede declines, these corrections have been short-lived and limited in magnitude, making it difficult to reposition effectively. The table below illustrates the size and duration of corrective moves following each signal over the past three years.
As the year draws to a close, I find myself once again evaluating whether this most recent signal will present another buying opportunity—or if it will finally behave as a true risk indicator, as it has in years past. As always, the case can be made for both the bulls and the bears.
Next week— the final letter of the month and for 2024 will include a full series of updates to the active trade ideas. An early happy holidays, and thank you for your readership in 2024! Through the remainder of this year a 25% off (forever) is available for both monthly and annual plans.