Time to Hedge Market Risk?

I’m starting to get a feeling I sometimes experience when markets become too wild and a change in course may be coming. I think timing markets is usually a fool's errand, but when you hear or see something that feels way off, it might be worth a shot.

Let’s take gold stocks late last year and early this year as an example. The long-term chart looked incredibly good for a contrarian entry, and they were really cheap compared to the price of the underlying commodity. I found it unlikely that the dynamics pushing gold up were going to change in the short to medium term, and smart money was buying en masse. I have learned when I see something really weird like that, it’s usually a good time to act.

I’m starting to get a similar feeling about the broad markets now, particularly with the recent rise in meme stock trading and the price action in Nvidia. Bulls are becoming increasingly arrogant, and making money is easy. At the same time, insiders are selling at a rapid pace. Furthermore, hedging is historically cheap right now and looks great for a long-term, contrarian entry. Something just doesn’t feel right about this setup.

I’m using this opportunity to hedge some of my portfolio against market risk. While shorting this market has lost a lot of people money, this is starting to feel like a euphoric top, and I sleep better having some hedges on.

I’m usually early, so I bought just a little bit, but I am likely going to add a bit more if we have the ability to “shoot the market in the back” later as the great short seller Bill Fleckenstein says.

Thanks for reading, and have a nice weekend!

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Disclaimer: This article is for informational purposes only and does not constitute investing advice. Please consult with a qualified financial advisor before making any investment decisions.