The drop in the stock market over the last week was fast and unrelenting. Based on this reality, we want to share with you our trading activity and thoughts on the direction of the financial markets.

As outlined in our Second Quarter 2015 Newsletter, our Third Quarter 2015 Newsletter and our August 2015 Newsletter, we have been highly concerned with the U.S. stock market’s high valuations. We sold about half of our direct U.S. stock market exposure in May and June after our long-term timing indicator flashed a “sell” signal; this was the first “sell” signal in 6 years and only the 3rd in 17 years.

Our secondary “line in the sand” was at S&P 1992 (i.e. January lows). On Friday, August 21st, we moved to further reduce our broad U.S. Equity exposure to only a few specialty names. We still hold REITs, MLPs and other “alternatives” with tangential exposure to the stock market. However, Optivest clients have avoided most of the recent drops and our composite account (all client accounts combined) was still up 2.85% (year-to-date) as of Friday (your individual accounts will vary).

We believe that this fast market drop coming off of all-time highs along with the drastic break below moving averages and other technical indicators are indicative of the start of a serious market drop, not the finish. Therefore, our initial target for the S&P 500 is 1644 – 1750, or down about 18% – 23% from recent highs, and it is currently down only about 11.3%. However, predicting exact market drops and bottoms is a tough prospect, so we remain light on our feet and diligent in our commitment to protecting your valuable capital.

All the Best,

Mark Van Mourick and Leslie Calhoun

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