Why I’m Raising Cash in a Market Making Record Highs
There’s a reason I’m feeling more cautious and have cash levels close to 50% now.
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S&P 500 futures are down 0.38% and Nasdaq 100 futures are 0.7% lower ahead of April CPI at 8:30 a.m. ET. The S&P closed at a fresh record high on Monday, but the action under the surface has been deteriorating, with nearly 250 stocks at new 12-month lows and poor breadth alongside the chip rampage. Oil is up and bonds are lower as we await economic news.
Neither Peace Nor War on Iran
President Trump declared the ceasefire with Iran on “massive life support” on Monday, calling Iran’s latest counteroffer “a piece of garbage” and saying he didn’t bother reading the entire document. He also talked about reviving Project Freedom to escort ships through the Strait of Hormuz.
The Wall Street Journal characterized the situation as “neither peace nor war,” but a stalemate where Iran is betting it can absorb the pain of the U.S. blockade longer than Trump can tolerate higher oil prices. That tension is the reason the TACO trade pattern has not produced its usual snapback this time. The Trump-Xi summit on Thursday in Beijing takes on additional importance as a possible catalyst for some sort of resolution to the problem.
Inflation Is the First Test
April CPI is expected at 3.7% year over year, and 0.6% month over month, which would be the highest headline reading since the early fall of 2023. The last time inflation was at this level, prices were falling after a similar energy shock caused by Russia’s invasion of Ukraine. This time, the energy problem is still active, and the building of the Strait of Hormuz remains in dispute.
Core CPI is expected at 2.7% year over year, and 0.3% month over month, and the key thing to watch is whether core breaks above 0.3%. That would signal energy leaking into non-energy categories and would make it much more difficult for the Fed to cut rates.
Why I’m Raising Cash
I am feeling the need for more caution and have cash levels close to 50% now. The problem is not that the market is about to collapse, but that there is no good sustained momentum outside a narrow group of overbought semiconductor names. Also, there are a lot of negative catalysts piling up against few positive ones. I’m particularly concerned that any good news will trigger a sell-the-news reaction in the most extended names.
We have a split market, with a handful of wildly overbought semiconductor names and many stocks that aren’t doing much of anything. CPI, PPI, the Iran mess with no resolution in sight, oil pressing toward $100, and the Trump-Xi summit Thursday are all headlines that will jerk things around. The overbought semiconductor names will not need much to trigger a round of selling.
My Strategy
Cash is the best position to hold when there is nothing else to do, and is the best hedge. I am keeping stops tight on the names that are working, raising cash on strength rather than chasing into extended setups, and waiting for the rotation to present better risk-reward opportunities. The bears have been wrong all year, and I am not turning bearish here, but I am not seeing the kind of broad opportunity that justifies aggressive deployment of precious cash right now.
I often preach about how important it is to keep your accounts as close to highs as possible so that you can enjoy the great power of compounding. That is my primary focus and is strategic rather than market timing.
Stay vigilant and protect those gains.
At the time of publication, Rev Shark had no positions in any securities mentioned.
