The current volatility the market is experiencing should come as no surprise to any investor you listen to, says Jeff Saut of Raymond James. “The historical move following a 40% plus rally like we’ve seen since the June 2012 lows is for something like a 5-7% correction over three month period of time, and something like a 10-13% historical pullback due sometime in the next 12 months,” he says, adding, “I think the decline is right on time and the only question is the magnitude of the pullback.”
Now before you start piling cash under your mattress and putting on your tinfoil hat, Saut says there may be a buying opportunity, albeit a brief one, in the coming months. “The timing models actually suggest sometime in March is where we should look for some kind of intermediate term bottom,” Saut points out. “The typical correction is 7% and that would put you at 1719 (on the S&P 500 ^GSPC) which is back into pretty heavy support zone between 1700 and 1730.”
So how should you play it now and in March?
“We had told clients to look at their portfolios and cull the stocks that have not performed since the June of 2012 lows and to raise some cash. With that in mind they should have somewhere between 20 and 30% in cash right now. I am not inclined to put that cash to work.”
Still, even if Saut’s models are correct and this roller coaster ride takes a break in March, he warns that there is ”the potential that this could spill into one of those 10-13% corrections.”
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