The market is at a critical juncture right now as bulls and bears battle to determine whether we’re on the verge of a steeper pullback, which is to be expected and would help take some of the froth out of the market, or whether the upwards momentum can continue. The big questions now are when the Fed will cut back on QE and what the investing environment will look like at that point. That’s what investors are wrestling with, and we have to expect some profit-taking in the wake of the market’s run and in its currently overbought state.

Here in Absolute Capital Return, we’re very mindful of current risks, which is why we’re being deliberate and strategic in our approach. I really like the portfolio we have right now in current conditions. We have a high cash position (44% of our portfolio), which not only minimizes our downside risk, but it also gives us plenty of powder to pounce on select opportunities when greater clarity emerges. For our hedges, we continue with an overweight (16%) position in ProShares UltraShort QQQ (QID) and a normal weighting in ProShares UltraShort Oil & Gas (DUG). And our four stocks are all steady growers that can move higher in market strength but have limited downside risk if volatility increases.

We saw how well all of these pieces work together just yesterday. The S&P 500 was down 0.7%, but our portfolio gained 0.3%. Even though we have both long and short positions, all of our holdings were positive on the day with the one exception of DirecTV (DTV), which was down 0.6%. That was very encouraging on what was a tough day for a lot of other investors. And today, with the market higher, we’re also in the green.

I’m always on the lookout for new opportunities, but only the right ones. We will be as patient as we need to be at this uncertain time to grow our wealth while sensibly managing risk. I continue to watch stocks that have upside potential in a strong market but limited downside risk in a bumpier environment. We will also stay vigilant and disciplined in managing our risk and cash position to protect the portfolio and allow it to grow over time.

Continue to hold your positions for now, and I will be in touch soon with your next Trade Alert.