Trade wars are back in the news and the financial markets are worried about a breakdown in trade negotiations that could result in Trump raising tariffs on Chinese goods by the end of the week. As I mentioned in my May 2019 Newsletter, the stock market is currently in a bullish short-term market environment. It is perfectly normal for the stock market to digest recent gains by consolidating sideways or pulling back to some degree.
That being said, the pullback in the market this week did create some short-term technical damage that does suggest that this pullback could possibly be more severe than the minor ones that have occurred so far this year. Because of this, I did sell some of our weaker stock holdings on Tuesday and purchased a Treasury Bond ETF yesterday. The effect of this reallocation is to reduce our market exposure to some degree. As an added layer of protection, I have stops set on each of our stock and bond holdings. A stop is a price, that if hit, the security is sold.
I still feel the market environment is bullish so I will look to increase market exposure once market technicals suggest this period of market weakness has concluded. On the other hand, if market technicals continue to deteriorate and this pullback looks to be something more ominous than just a short-term period of weakness, I will look to further reduce market risk. At this point, I believe the former is the higher odds scenario.
If you have any questions, please feel free to shoot me an email.
Craig Thompson, ChFC
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