by Gavin M.
It's hard out there for bears. In a market where selling pressure can only last for up to three weeks at the very maximum, it's challenging to make money on the sell side of the trade. There is an unfathomable level of risk taking in the markets and it continues to be biased to the upside. With dwindling global economic data and worsening crises all over the world, it truly is a miracle why markets are continuing to ignore all of that and reach new highs.
The markets have continued to rise and fall on every word of Central Banks. What we have now is an Centrally-Planned global market where they move on whether or not Central Banks ease. It truly is a sight to behold. For example, last week, when the FED came out with a very dovish statement, the S&P 500 jumped 50 points higher and just stayed there for the remainder of the session.
Before you vilify me as a naysayer or a doomsday hack, I just want to be perfectly clear. I am a trader and much as I would like to go back to the old days where fundurrrmentals mattered, I have to trade what is right in front of me. So I jumped on the bullish momentum as well because that's what the market wanted. At this point, I do not know when fundamentals will or will ever be priced in. I do know, however, that every time we closer and closer to the highs, I get more and more cautious with my bullish bets.
The boom-bust cycles of markets dictate we reset every 6 to 8 years. We are exactly at year 7. So give or take maybe we have until 2017 or 2018. While that may still be far away and you may be thinking, "why the heck is Gavin even trying to scare me about going long?" I am just merely pointing out the fact that history has shown any market that goes up vertically on little to no merit will have a disastrous correction.
I only need to keep looking at IBB - the biotech ETF and that makes me incredibly nervous. It is reminiscent of the Nasdaq of 2000-2001 and we all know what happened then. The point that I am trying to make here is that the markets may still have some gas left in the tank. Perhaps it is enough to get you to the most recent highs or even make a new one. But, do not ever allow yourself to be complacent.
What good is buying a utility or a healthcare stock at $40 and collecting a dividend of 4% when it crashes down to $20 in a year or so? You do not simply buy at these lofty levels. Common sense can simply tell you that. You are better off buying stocks at significant corrections rather than buying it when it is close to the highs.
The FTSE hit a new high. The dow is inching back to its recent highs. The S&P 500 is retracing to the all time highs. And the best part of all, the NASDAQ is testing the 2000 highs. If none of those make you a little bit queasy, I don't know what will. Confidence in Central Banks are good and all, but I'd rather have confidence in my ability to know when to take profits and to keep my powder dry for the next opportunity whether that be a long or a short.
Stay liquid my friends...
Traders from Equity Sense will be writing on this blog on positions and other market-related things.