The first three months of 2020 are in the books… and the news isn’t great. This Dow Jones Industrial Average booked a 22% loss for the period, which means it now holds the record for the index’s worst first quarter ever.

(Silver lining: This may have been the Dow’s worst first quarter, but it’s not the index’s worst quarter ever. That prize goes to the final quarter of 1987, which saw a 26% loss. And the market managed to recover from that.)

After a big decline, many investors like to buy. But one of the world’s greatest investors is urging caution.

According to CNBC…

Billionaire trader Steven A. Cohen is cautioning the staff of his investment firm, Point72 Asset Management, to remain cautious amid markets that have recovered slightly from coronavirus-driven lows.

“Markets don’t come back in a straight line; after an earthquake there are tremors,” Cohen wrote to staff on Friday in an internal memo seen by Reuters.

“We need to continue to be disciplined. We are seeing plenty of opportunities to generate returns, but I don’t want us taking undue risks.”

Another billionaire trader, Paul Tudor Jones, agrees with Cohen. Jones correctly forecast the 1987 crash.

Jones told CNBC…

“My guess is one of the reasons the market’s up right now is because of all the month-end rebalancing. The market’s front-running, it sees the fact that there are going to be a lot of equities to buy. That’s one reason my guess is we’ll stay firm into month-end and then we’ll be challenged in April,” as the market digests a peak level of coronavirus cases.

“I think that could bring us to a retest, it might even bring us to a fractional new low. But I do think the stock market’s going to find a bottom once we get a peak in the epidemic curve, [there’s] not a doubt in my mind the stock market will rally,” he continued.

“My guess is we’ll be higher three or four months from now, five months from now, than lower than where we are right now.”

I respect the opinions of Cohen and Jones. I’m glad to see their analysis agree with my own. I see at least a retest of the lows… if not new lows. But not everyone is cautions. Among individual investors, there is a sense of complacency and optimism.

We know that investors are nervous because of the data in the American Association of Individual Investors (AAII) weekly survey.

In an average week, 38% of investors are bullish, 30% are bearish, and 32% are neutral. Last week, just 32.9% were bullish.

Source: AAII.com

In previous bear markets, we’ve seen the percentage of bulls fall below 15% and the number of bears top 70%. We are far from those levels.

When two of the best hedge fund investors in the world are cautious, and individuals are bullish, the best approach to the market is cautious. This week, I recommend avoiding stocks again and making another trade in a fixed-income exchange traded fund.

How I’m Trading This Market

Several days ago, I recommended a trade in iShares 20+ Year Treasury Bond ETF (NYSE: TLT), an ETF that holds Treasury bonds. We closed that trade yesterday for a modest gain.

This week, I’m recommending a trade in an ETF that holds corporate bonds, iShares Core U.S. Aggregate Bond ETF (NYSE: AGG). This ETF tracks an index composed of the total U.S. investment-grade bond market. It’s holdings include Treasuries, mortgage-backed securities, and bonds of high-quality companies.

The Federal Reserve will be taking steps to stabilize Treasury markets, mortgage-backed securities, and corporate bonds — all efforts that should reduce the risk in AGG.

This news contributed to the Income Trader Volatility (ITV) “buy” signal in AGG.

Unfortunately, out of fairness to my Income Trader subscribers, I can’t share the exact details of the trade with you. But just know that this serves as proof that it is possible to make successful trades in this market. You have to be nimble, sharp, and willing to venture into new territory from time to time.

It also helps to have an award-winning indicator like ITV working for you. We’ve been using this to identify trades since 2013, and have made winning trades more than 90% of the time. And my followers have earned tens of thousands of dollars in income in the process (even hundreds of thousands for some). To learn more about ITV and join there ranks, go here now.