Nothing has really changed for us since last week. The market saw a big move on Monday, January 3rd but spent the rest of the week consolidating sideways. The larger trend is still up but stocks look overbought and due for some profit taking. Odds are that profit taking will hit during earnings season as traders sell the news.
Earnings season could also herald the beginning of the market-wide correction we are expecting. Stocks could see a -5% to -10% pull back over the next four to five weeks. The major indices might see a smaller decline but individual stocks will definitely see some volatility. Tonight is not the best time for us to be launching new long-term bullish positions. We want to wait for the correction and look for an entry point in late January or early February.
Tonight is the time for us to be thinking about a hedge. You could buy short-term puts (30 to 60 days out) on the S&P 500, the NASDAQ, even the small cap Russell 2000 index. How big of a hedge (if any) is up to your and your own personal level of risk. There is no guarantee of a correction lower but odds certainly favor one.
Given our current circumstances I am not suggesting new LEAPS positions at this time.