Rahm Emanuel once made a famous statement by stating that politicians "should never let a serious crisis go to waste." Of course, what he meant was using a crisis to leverage support for political agendas. However, when it comes to the financial media, that saying certainly holds true for using a crisis to garner viewer/readership. The situation in Greece has certainly given the media something to sink their teeth into delivering a message much like the following:

"Over the last couple of weeks the markets have been rocked by the Greek crisis. Investors globally fled to safety as fears of a "Greek debt default" began to spread. On Monday, selling culminated in a massive plunge as major U.S. stock markets fell from recent highs."

However, if we step back from the media's messaging and take a look at the market, a significantly different picture begins to emerge. The chart below is a monthly chart of the S&P 500 index.

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When put into some perspective the recent "decline" is much less dramatic. Importantly, the markets continue to maintain the longer-term "bullish trend" which has been the hallmark of the market's accelerated advance since the onset of "QE3" in December of 2012.

Importantly, for investors, the TREND of the market remains positively biased for now. Regardless of your personal bias (bullish or bearish,) as it relates to the economy or markets, the positively sloping market trend requires portfolios to remain tilted toward equity (risk) based exposure.

However, and importantly, where investors inherently go wrong is the extrapolation of the current condition indefinitely into the future. As shown in the chart below, there are internal dynamics that suggest that current "environment" for carrying excess "risk" is deteriorating.

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The market, on multiple levels, has reached points that have existed only at previous major market peaks. Furthermore, the internal dynamics are issuing very similar warnings, in terms of momentum, deviation, and relative strength, as to what was seen just prior to major turning points previously. While this does NOT mean that the market is on the verge of immediate mean-reverting correction, it does suggest that future market returns are likely to be far less robust than what has been seen previously.

Historically, as shown in the next chart, the rotation between "safety" and "risk" could be clearly seen by the relationship between stocks and interest rates. However, that relationship has been significantly skewed since the "financial crisis" due to the massive interventions by global central banks which as fostered an excessive "risk on" mentality that has become known as "TINA" or "There Is No Alternative" to stocks.

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It is quite likely that acronym will go down in the future along the same lines as "this time is different" which has historically been the hallmark of market exuberance.

Not surprisingly, as I discussed recently, given the high level of complacency by investors, cash allocations are near historical lows while stock allocations remain near levels that have previously denoted market peaks.

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It is here that lies the biggest problem for investors which is the separation of"emotionally" driven investment decisions from decisions based on a logical and disciplined investment approach.

As I suggested yesterday, China is likely more of a threat to the financial markets than Greece because what is happening in China, and as being witnessed by the Shanghai index, is NOT being covered by the media. As I have stated previously, what trips up the market is generally not an event that the market is well aware of, but one that catches it by surprise. The events in Greece, have been, and continues to be, widely publicized which has allowed the markets to factor in potential outcomes. However, that is not the case with an event emerges without warning. That "surprise" factor is what has historically been the "match" that ignited a more significant market correction.

Furthermore, while it is often stated that major market reversions never occur outside of a recession, the reality is such correlations are only seen in hindsight as recessions are recognized well after the event. The chart below shows the NBER's (National Bureau of Economic Research) recession announcements as compared to the S&P 500 index.

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The reality is that the markets lead recessions, and likely are a major contributor to recessions as the plunge in asset prices impacts consumer confidence. It is worth remembering that at the peak of every stock market cycle has been the clarion call of"economic prosperity" and "peak employment," Record levels of anything should be a warning.

For investors, it is not time to become complacent or dismissive of market action. While recent price declines have not violated or changed the current bullish trajectory of the market, it does not mean that such will not eventually become the case. The markets, much like a ball thrown in the air, have been lofted higher due to an enormous amount of "force" that was created though liquidity interventions, suppressed corporate profitability, pent-up investor demand, and a variety of other factors following the financial crisis.

However, when that "force" is exhausted the ball will eventually return to earth. The markets, like anything, adheres to the laws of physics. The gravitational pull of the longer-term moving average will eventually drag prices into a mean reverting event. At that point, the issue of valuations, price extensions, and a variety of other factors will become vividly apparent. Unfortunately, for most it will be far to late to be proactive which will lead to a replication of the "buy high / sell low" process that has destroyed investor capital repeatedly in the past. 

It is time to pay close attention to market dynamics and adjust portfolio risk exposure accordingly. While I don't know WHEN the next major market reversion will occur, I do know that it eventually WILL. This is why managing portfolio risk and paying attention to the overall trend of the market will allow for a more logical decision-making process rather than reacting to headlines.

It is always better to be more conservative during periods of market uncertainty as it is much easier to increase portfolio "risk" when the overall enviroment gains clarity. However, spending long periods of time making up losses is much more problematic in achieving long-term investment goals.

As Issac Newton once said: "Gravity's a bitch."

Lance Roberts