Repricing Risk Is Now Resetting Risk

One of the oldest tricks to avoid saying something negative about the market is to re-frame anything bearish into something much more neutral so that the negativity will be short-lived and certainly endurable if you “invest for the long-haul.”

According to Bloomberg’s BusinessWeek, formerly Harvard Endowment’s Mohamed El-Erian, now chief executive officer of Pacific Investment Management Co., said he expects the U.S. economy to experience a “slow resetting” this year. This is typical language from a person who’s management company provides long-only investments.

My take on it is that the stock market is a discounting mechanism and it reflects financial voting of its constituents. It technically resets every trade, in both the cash market and in the S&P 500 stock index futures.

Since that information is readily available, you can decide what part of the resetting you want to participate in. By using protective Sell Stop Orders to preserve your gains, you can offset the risk to your portfolio and be in cash, especially if you are a long-only trader or investor.

You can also use Sell Stop Orders to enter the market short by entering them below the current market. They will be triggered if the price of the futures contract trades at or through the price you set on the Stop Order.

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