Since last week, credit spreads have been creeping up. Although the level is not as high as in May 2010, it is still a cause for concern. There is a danger that the Irish debt and potential war in the Korean Peninsular have caused investors to shun risk assets recently.
On the plus side, money supply indicators are sideways, not deteriorating.
All these point towards a correction to the tune of 10 - 20%. So far, most markets have already corrected 7 - 8%. There could be another 3 - 12% more to go. Volume is down even when markets are down, which is good.
What should you do? Maintain an asset allocation of 60% equities and 40% others/alternatives. Trim off some unwanted equity positions (e.g. if the stock isn't performing even in good times, or is finally turning a profit). Add some volatility funds / short some indices to hedge partially.
Next week, you should start to nibble some stocks very soon. If you're unsure, think about the QE that's happening now. The money's gotta go somewhere.
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