The stock market’s historically high valuations, coupled with a confluence of specific growth challenges, combine to present investors with the most potentially dangerous market setup in years.

We review the threats ahead, the likely paths to deal with them, and how SMI investors can prepare.

A core appeal of SMI is that it provides an investment framework that requires zero forecasting to operate successfully. This is highly unusual. Most of the investing world is driven by forecasts — the majority of which end up being wrong — making SMI’s trend-following approach both liberating (we don’t have to continually try to sort out which forecasts are the right ones) and profitable (SMI’s strategies have delivered strong returns over time despite not playing the forecasting game).

However, long-time SMI members also know that the main vulnerability of our trend-following strategies exists at market turning points, when the transition from an old market trend to a new one can be painful. The more significant the trend change, the bigger the potential hit to our portfolios.

The goal of this article is to explain why I believe the conditions facing investors in 2022 may warrant augmenting SMI’s normal process with additional safeguards. I’ll build that case over the next few pages and let each reader decide if taking additional precautions (beyond those already built into the SMI framework) is warranted.

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