I spend a lot of time evaluating factors that are indicative of equity market returns over durable horizons. At the moment, several of these factors have lined up to suggest that equity markets are due for a multi-month downward price correction.
In general terms, these factors include (in no particular order of importance):
1. Valuation--prices are at high enough levels that the opportunity for further appreciation may not be large relative to normal equity market risks.
2. Sentiment--recent measures indicate excessive bullishness, which from a contrarian perspective suggest that prices may decline from here.
3. Liquidity--day to day and week to week levels of selling by holders may be increasing relative to purchases by those desiring to add to equity market exposure.
4. Elasticity--measures of buyers' and sellers' responses to changing prices suggest that the market response to news will biased to the downside, that is, "good news" will tend to bring about smaller increases in prices as compared to an equal measure of "bad news", which will tend to bring about larger decreases in prices.
5. Trend--short term measures are suggesting that support levels below current levels are about to be "tested". While long term measures are still "bullish", corrections always start by tests of near term support.
Now may be a good time to assess whether exposures to equities are at an appropriate level given on going risk tolerances.
Not a recommendation. Do your own due diligence.
Additional disclosure: Positions named above are hedges of equity long exposures. Overall and net portfolio positions are subject to change on a day to day basis.