Your 6-point plan to navigating a choppy stock market

Yes, he’s bearish, but Nader’s recent jump into the fray is a sign the general public has become too enthralled by stocks. This isn’t surprising, given that the S&P 500 SPX, -0.09% had been hitting new highs since mid-October.

• The Investors Intelligence Bull/Bear Ratio, a weekly survey of professional financial advisers, was recently at 3.32. Anything above 3 is a yellow flag, by how I read this gauge. Moves above 4 are a red flag. • The Cboe Options Exchange put/call ratio over the past 10 days is low at 0.75. Any read below 0.85 is excessively bullish, a negative for contrarians like me. Owning puts is a negative bet since they go up in value when the market declines. Owning calls is a bullish bet. So when put buying dries up relative to call buying to this extent, it tells us investors are bullish.

Insiders overall are also cautious, too. Sell-buy ratios tracked by Vickers Insider Weekly have risen to bearish heights. “As equities continue to hit all-time highs, contrarian corporate executives, directors and beneficial owners are responding by buying fewer shares and selling more shares,” according the letter.

2. Avoid margin. Like alcohol, debt can make the good times better and the bad times worse. If we get a market drawdown, you won’t want to be in stocks you’ve purchased with a loan from your friendly brokerage. In a worst-case scenario, you’ll get a margin call that could force you to sell stocks near the bottom. Remember that brokerages dangle more margin in front of you when the market is strong, and then pull it back during drawdowns.

“Should we experience a correction, it would likely be limited in duration and not the end of the bull market,” says Bruce Bittles, the chief investment strategist at Baird.

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