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Markets fluctuate, they go up and they go down too. Our job is to make the most out of these fluctuations by going with, and not fighting, the tape.

Even though you could have pointed out many reasons why one should have been expecting a correction, or even a crash, we’ve been bullish for the most part of last year up until now. Looking back, that was the only right decision to be made.

However, we think now could be the time for becoming cautious going forward. We’re not becoming ‘the end of the world’ bearish yet, but the ride could become bumpier.

Let me start with a daily chart of SPX, S&P 500 index.

The price has reached a first logical level after a solid looking, almost two years long, consolidation. It would be no surprise to see a pullback from up here.

The price could correct to 2950/3000 and still not change the fact that we’re in a long term bullish regime. It would bode well with normal intra-year corrections that are on average of magnitude of about 15%. A correction to 3000 would mean a good 10% correction from January’s peak.

However, when January closes negative for the month, expect higher volatility during the course of the year. Standard deviation of closing daily changes is 13% and 24% higher compared to an average year and a year with a positive January performance respectively.

Not only that volatility usually picks ups during the years with poor January’s performance, also does average intra-year corrections. When January closes down for the month, an average intra-year correction rises to 18.5% from 15% and 13% compared to an average year and a year with a positive January performance respectively. 18.5% correction from 3330 would take us down to 2700, levels seen early June last year.

Where should we allocate our assets? I’m far from a gold bug, but I started paying attention to gold in late 2018 already. I’m still waiting for some confirmation signs, but it would not be surprising if we start seeing gold to outperform in the years ahead.

If gold can move above last year’s highs on a relative basis to stocks, that’d be a great tell. And, as things stand now, there’s no sign of a top in bonds yet. To the contrary, it seem’s bonds could rally from here onward too.

ChartingTrades.com is a blog of CT Capital Ltd.

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