Is the Market’s Check Engine Light Flickering? (Market Exit Strategy)

Monitoring the Market Dashboard

I have been a financial advisor for a long time, and I have learned that the best way to handle market uncertainty is to stay objective and have a clear market exit strategy.

I do not believe in sensationalizing the news or trying to scare people with a crystal ball. Instead, I like to look at the market dashboard like I would look at the dashboard of a car. Lately, it feels like the check engine light has started to flicker.

The Hindenburg Omen Signals

In the world of technical analysis, there is a specific indicator called the Hindenburg Omen. I have written about this before, but it is worth revisiting because we have seen three of these flashes in just the last month. We also saw a cluster of them back in November of last year.

To put it simply, the Hindenburg Omen is a diagnostic tool that looks for cracks in the foundation of the stock market. It triggers when the market is split. This means we see a high number of stocks hitting new 52-week highs at the same time an equally high number are hitting new 52-week lows. This is a sign that the market is exhausted and divided. While it is not the gospel and it can definitely flash false signals, it has a high historical probability of predicting volatility when several flashes happen close together. Historically, when you see two or more instances of this within a 30-day window, it is a signal to pay attention.

Economic Smoke Under the Hood

A technical signal by itself is just one piece of the puzzle. However, right now we are seeing a lot of smoke under the hood from the actual economic reports. Yesterday provided a whirlwind of macro developments that seem to validate what the technical indicators are whispering.

• First, the latest GDP report was a bit of a dud. It came in at 1.4% growth, which was less than half of what many experts were expecting.

• At the same time, the PCE price index report - which is the main report the Fed looks at for inflation - came in a hair too hot. It is currently sitting at 3.0% year-over-year. This combination of slower growth and sticky inflation makes it much harder for the Fed to consider cutting interest rates in the near future.

Geopolitical and Policy Uncertainty

Beyond the numbers at home, we are also dealing with significant geopolitical risk.

• Tensions are high between the United States and Iran, and we are seeing oil prices start to creep up as a result.

• We also saw a rollercoaster of news regarding tariffs yesterday. While the Supreme Court ruled against certain sweeping tariffs, the administration immediately proposed a new 10% global tariff. This creates a massive amount of uncertainty for companies that rely on imports (like Amazon, down 9% over the last month), and the markets generally hate uncertainty.

Reading the Scoreboard

When you look at the scoreboard, the impact is clear. The Nasdaq is currently down 1.5% year-to-date and the S&P 500 is barely in positive territory. The market has been moving largely sideways since last October.

When a check engine light comes on in your car, you do not necessarily jump out of the vehicle while it is moving. You pull over and check the oil. You perform maintenance to make sure a small problem does not become a total engine failure. In this kind of environment, the best maintenance is a fiduciary approach to risk.

A Fiduciary Approach to Volatility

This is an ideal time to verify your risk level. You should ask yourself if your portfolio is actually set to your current comfort level, not where it was a few years ago. You should also be very careful about concentration risk.

⭐ 5-Star Tip: Generally, you should not hold a high concentration of your total account value in any one single stock. It’s tempting to let that one lucky winner ride, but remember: even the best-looking car can end up on the back of a tow truck if you put all your weight on one tire. You do not want too much of your net worth tied up in just one or two stocks, no matter how well they have done in the past.

The Market Exit Strategy:

I always like to know where the exit door is!

In my practice, I utilize an ETF-based portfolio strategy designed to address market risk head-on. This approach includes a clear plan for when to reduce exposure if the risk level simply gets too high. Having a rules-based exit door means we are not relying on emotion or guesswork when the dashboard lights start flashing.

Past performance is no guarantee of future results, but staying disciplined and diversified is usually the best defense against a choppy market. I am going to keep watching the dashboard so my clients do not have to. It is an interesting time to be a student of the markets, but it is an even better time to be prepared.

👉 Are you looking for a fee-only advisor to work with? Book your free discovery call and let’s start the conversation.

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John Piershale, CFP®, AEP®

Fee-Only and Fiduciary Advisor

NAPFA-Registered Financial Advisor

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This article is for educational purposes only and is not legal or tax advice. Please consult an attorney or tax advisor regarding your personal situation. Piershale Wealth Managemen

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