How to Mitigate the Risk of an S&P 500 Momentum Crash

by Brett Golden
Market Watch

There are a number of different schools of thought on positioning your portfolio for momentum crashes caused by the herding effects of overcrowded trades. Historically speaking, it rarely makes sense for investors to move to 100% cash to try and avoid a large S&P 500 drawdown. No one over a market cycle can generate alpha by calling market tops and bottoms.

Although that doesn’t mean investors can’t tactically hedge or better yet raise cash levels when markets become overbought on a technical basis. For our purpose, we measure overbought markets measured by technical metrics on an intermediate-term basis (90 to 250 days).

In our April column, “Is the S&P 500 about to correct,” we discussed using the iVIEWMarkets sentiment indicator to reduce equity exposure at a 60 reading.

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