A correction is likely. In fact, in many parts of the market, it is already here. Some sectors are even in deep bear markets. It started with software and crypto, then spread to private credit, consulting firms, insurance brokers, financials, and real estate services. Today, logistics stocks are plunging by double digits. The weakness is slowly spreading from sector to sector, crushing stocks across the board.

What stands out most is not the selling itself, but the complete lack of willingness from investors to step in and defend during these sharp selloffs. That is because everyone is all in. There is very little dry powder left, as highlighted in last week’s update.

So, from last week’s update:

Continued volatile and choppy action is likely. And it’s not like a pullback would be completely unexpectedly either. So, some caution is definitely warranted. You never know when they happen exactly but the market offers subtle clues, if you pay attention and look closely. I’ve been highlighting some of them over the last few weeks.

• Elevated volatility

• Sell off on good earnings

• Value names outperforming

• Gold and silver going parabolic

• Narrowing breadth market

• Crypto getting crushed

Of course, there are no guarantees.

But when you start to see more of these signals, it makes sense to be more cautious.

Now add this on top of what we already discussed:

• Deteriorating sentiment

• Many sectors are in deep bear markets

• Most of the Mag 7 are in no man’s land

• Very few leading stocks and sectors

• And the main indices are starting to roll over

The market is clearly starting to cool off, which isn’t entirely surprising. But with increasing distribution days, leading stocks starting to give back, and risk-on assets under pressure, it adds up to the setup for a market correction.

Nobody knows how deep this correction could go.

But one thing is clear: the downside risk clearly outweighs the upside potential right now.

It’s really important to know when to be aggressive and look for opportunities in the market, and when to be defensive and protect both your mental and financial capital. This is a market where you get paid for being patient. You do not need to swing at every pitch. You can simply wait for the next big pitch when the odds are back in your favor and the market starts rewarding risk again. Right now it’s clearly not.

It’s hard to see any sustained rally when most of Big Tech is fading and showing no real signs of life. Google and Nvidia are holding up reasonably well. But even they cannot carry the entire market if the rest does not follow. You want to see broad participation, more stocks acting well, and leadership expanding. That is missing at the moment. Until that changes, rallies are likely to be short lived and sold into. Chasing strength in this environment usually ends poorly. Let the market prove itself first.

So, even though there is no reason to believe this bull market is over, it does not hurt to be cautious in the near term.

The focus right now should be on managing risk. When the market starts to correct, even a little, momentum stocks can get hit very hard. As we have seen, a normal 5-10% correction in the major indices can easily turn into a 40-50% correction in individual stocks. The goal is to give back as little of your hard-earned profits as possible. Make sure your risk exposure stays under control. That means smaller position sizes, fewer trades, and being very selective. Cutting exposure early is a lot easier than trying to recover from deep drawdowns later.

Here are a few ways to do that:

1. Cut losses early. You don’t want to hold too many losing positions, especially at the start of a correction. Nobody knows how long a pullback will last. That’s why you need to be even more disciplined.

2. Hold enough cash. A pullback can create new buying opportunities. But you can only take advantage of them if you have cash available.

3. Clean up your portfolio. You want to constantly prune your portfolio. Keep the strongest. Get rid of the weakest.

4. Reduce exposure to momentum names. They are the most vulnerable names in a correction.

5. Hedge your portfolio: This is a more advanced strategy and not suitable for everyone. If you know what you are doing, you can use short positions, inverse ETFs, or volatility instruments to help manage drawdowns.