- Markets are correcting, which is normal for October–November in a US midterm election year.
- Our satellite portfolio is now 100% in cash after stop losses were hit one by one.
- History suggests the year after a midterm is usually positive, so a turning point could be close.
- Before buying again I’m watching copper, the US dollar, junk bonds and global momentum.
Lesson 1: logical themes don’t always make good investments
If I asked you to pick a theme to do well in an oil crisis, you might choose electric cars, batteries and lithium. Logical, but it hasn't worked: VOLT (global lithium miners) is down about 50.2% since April, while FUEL (global energy companies) is up 16% and OOO (oil) is up 28.4%. A good story isn't the same as a good investment. Follow the price.
Lesson 2: investor psychology
On the day of the correction, a couple of subscribers cancelled, and a long-standing client who has a habit of calling right around major turning points called again. That's not a criticism; it's human nature. After 20+ years in markets, I've learned that when fear starts driving decisions, we're often getting closer to a turning point. It's not a buy signal on its own, but combined with the indicators below, it makes the next few weeks particularly interesting.
Key markets
Australia
The ASX is bouncing around its 200-day moving average and stuck below the 50-day, with support below and resistance above. It needs to decide which way to go, and that depends mostly on financials and resources. Resources (MVR) are slightly below the 200-day with shorter averages trending down. Financials got a defensive bid this week, along with healthcare, which isn't a sign of real strength.
United States
Volatility has finally picked up, which is normal for this time of year, especially heading into the US midterms. Bond-market volatility spiked first then settled, a mixed signal. The S&P 500 is in a big base; if it undercuts it, I'd expect a move down to the 200-day. The Nasdaq has come under pressure, which is why we weren't buying its breakout while the rest of the market was weak. Expect a volatile couple of weeks.
Signs of rotation
- UK (FTSE): money is flowing back in. It has tended to lead the Australian market by a week or two.
- Small caps and US regional banks: still weak, which doesn't give us much confidence.
- S&P 500 equal weight: after about eight weeks straight down (historically significant), it has popped up.
Plenty of mixed signals that need more time to work out.
How we’re positioned: satellite 100% cash
We're not suddenly rushing to sell. We already did that. Our Market Health-O-Meter has warned of deteriorating conditions for months, and as satellite positions hit their stop losses, we exited them one by one. The result: our satellite portfolio is now 100% cash. In a 70% core / 30% satellite portfolio, that means about 30% of the overall portfolio in cash, with the core still invested.
The midterm election pattern
Volatility in October–November is normal, and more so in a US midterm year. So far the market is only down about 9.1%; in past midterm cycles it has fallen as much as 38%. The encouraging part: the year after a midterm has usually been positive, with only a couple of exceptions. That's why I'm watching very closely.
Why I’m actually excited
Because we have cash. As my mentor William O'Neil taught, roughly three out of four stocks move with the broader market. Fight the market and even great investments struggle. These conditions won't last forever: new leadership will emerge, stronger sectors will outperform and ETFs will start breaking out. The question isn't whether we can predict the bottom. It's whether we'll recognise the opportunities when they arrive.
What I’m watching before buying again
- Copper ("Dr Copper"): holding the 50-day in a bull flag. A breakdown would make us much more cautious.
- Zinc: already pulling back, as expected, onto its 20-week average.
- US dollar: we want it to ease after four straight weeks up. Another leg higher would be a worry.
- AUD/USD: a stronger Aussie dollar would point to a commodity-style bid.
- Junk bonds: back to tariff-correction levels. We want to see them find a low.
- Global momentum (GTUM): two big weeks down as the AI trade cooled. We want to see buyers return.
Your turn
What percentage of your portfolio are you holding in cash right now: 10%, 20% or more? Share it in the YouTube comments. I'll share the results next week.
General information only, recorded at the date shown. Market views can change quickly. Mentions of ETFs, indices and portfolio positioning are not recommendations and don’t consider your objectives, financial situation or needs. Past performance and seasonal patterns are not reliable indicators of future performance.