It’s been said the only bubbles that Wall Street sees are the bubbles in its champagne glasses.
It appears those words are true because year-end targets for the S&P 500 (SNP:^GSPC) by Wall Street’s finest – are shall we dare say – quite bubbly:
- Bank of America 2,200
- Goldman Sachs 2,100
- Morgan Stanley 2,275
- JPMorgan 2,250
- Stifel 2,350
- Canaccord 2,340
- RBC 2,325
- Birinyi 2,300
- UBS 2,225
The chart below shows how the S&P 500 (NYSEARCA:VOO) actually trades near 1,920 – a healthy level below Wall Street’s optimistic year-end targets. And although there’s still one more quarter in 2015 to see if these targets come true, the S&P’s recent performance coupled with volatility surge (NYSEARCA:UVXY) isn’t promising.
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As our chart below illustrates, the S&P now trades underneath key technical levels like the 50 and 200-day moving average and is a sign that price momentum is still to the downside. Furthermore, you’ll notice how the volume overlay at the very bottom of the chart shows a significant spike in trading volume on down days. Even the most optimistic analyst has to admit this isn’t exactly a bullish backdrop.
Aside from capitalizing on further downside in bearish stock ETFs (NYSEARCA:SPXS) held inside your non-core portfolio (this is the only proper location for short or bear ETFs within a portfolio if you decide to own these types of funds at all), we have repeatedly told readers – going back the the Spring of 2015 and again to the Fall of 2015 – to build a “margin of safety” inside their investment portfolios immediately. Like insurance, you need to exercise forethought by acquiring a “margin of safety” before the fire – not after the house burns to the ground.
The September 2015 issue of the ETF Profit Strategy Newsletter explicitly stated that an investor’s “margin of safety” is the “single most important thing you can do right now.”
Your “margin of safety” represents the capital or money that you absolutely cannot afford to risk to potential market losses. This money gets set aside from your core and non-core portfolio to be invested in fixed accounts with principal protection and liquidity. Yes, protecting money – not just saving money – is essential.
To help you determine the right level based upon your current financial circumstances, just download ETFguide’s “margin of safety” worksheet that we just published for premium readers. Unlike Wall Street’s perennially optimistic bulls, it’s a realistic view of how to invest and protect money with prudence in mind.