Two key technical indicators utilized by Baseline Analytics suggest that it may be time to hedge long positions.
VIX has drawn well below its moving average, and the CBOE Put/Call Ratio has likewise fallen to an extreme low. Both of these technical indicators are considered contrarian and typically flash at least a short-term pullback in equities.
As for the longer-term picture, indicators remain positive based on our TrendFlex Allegiance Score of 1.25 (1.0 bullish extreme; 3.0 bearish extreme). Any short-term setback may settle the S&P 500 near the 2100 area.
Likewise, our TrendFlex Allegiance credit risk spread indicator is also bullish, and has gone sharply higher following the settling down of the Brexit news.
Strategy? Hedge long positions in the short-term, but don't underestimate the strength of this market. Valuations need consideration and with earnings looking so-so, the market may be edging toward an overvalued stance. However, keep in mind the historically low interest rates when gauging equity valuations.