Stock Market Trend In Jeopardy

Foreign Investment

As I noted on Tuesday, the past 12 months saw record inflows into U.S. equities from foreign investors. It’s also interesting to note that foreign investment was consistently low until the mid-1990s when globalization really picked up steam.

The chart above demonstrates that foreigners have rushed into U.S. stocks at the fastest pace ever (in real dollars), exceeding prior peaks in early-2001 and 2007.

I would consider this to be a long term warning sign.

Conclusion: market outlook

Here’s how I think about markets based on different strategies & time frames.

  1. Long term investors should be highly defensive right now. Look for opportunities away from public equities where there is less long term risk.
  2. Short term trend-focused portfolios should continue to ride the bull trend because no one knows exactly when it will end. However, stay vigilant next week in case market conditions continue to deteriorate.

My discretionary market outlook does not reflect how I trade the markets right now. I trade based on my trading algorithm that cuts through the noise of endless research, indicators and charts.

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