Because I want the odds to be as much in my favour as possible, I only buy stocks when the short and long term trend of the general market are up. Therefore, when the short-term trend changes, I will have to go into cash or bonds.
Going into bonds when the markets are going sideways or down has worked for me in the past, as the chart below shows:
The chart above outlines the areas where the short-term trend of SPY turned down and also shows correspondingly how bonds, as measured by TLT, did. The bond ETF tends to do quite well during market corrections.
Next, is another bond fund, that contains shorter term maturities, IEF:
If the general market's trend changes, I may go back into US Bonds. Although the technicals look strong, the fundamentals for US government bonds seem incredibly weak. In fact, here is what legendary investor Jim Rogers had to say about the topic:
It's too late for moderate measures. We're coming to a time when only only strong measures will stop the haemorrhaging. Even if we somehow balance the budget tomorrow, there's still the debt of trillions of dollars for someone to pay... If this sounds radical, all I can say is wait until everything collapses around us.
Would you buy US Bonds after hearing such dire words? Yes, if you have a trading plan, use risk management, and have an exit strategy, you can ignore all forecasts. Rogers, by the way, wrote this not this year, nor last year, but way back in 1994 in his otherwise great book, Investment Biker.
