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Market pullback or bear market?

ZeroHedge: 'After a long period of only 5% drawdowns, the 10% market pullback in January “felt” like a crash. However, if we go back to 2009 and draw a trendline along the 24-week moving average, we see the recent correction has done little to violate that bullish trend...


'...we approach risk management in the market by choosing to hedge risk and reduce potential liabilities. As such, given the market’s current structure, we have three options currently:

  1. Do Nothing – if the markets correct, we lose destroy capital and time waiting for the portfolio to recover.

  2. Take Profits – This has been our choice on the recent reflexive rally. Taking profits, raising cash, and reducing equity exposure in advance of a correction mitigates the damage of a decline. However, if wrong, we can repurchase positions, add new ones, or resize portfolio holdings as needed.

  3. Hedge – We have also opted to hedge by adding a position to the portfolio that is the “inverse” of the market. Such allows us to keep existing positions intact. By “shorting against the portfolio,” we effectively reduce our equity risk (and related capital destruction) during a market correction.'


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