Wednesday, February 16, 2011

It is dangerous to stand in the path of thundering bulls - all lights green?

Since the break-out last September, the stock market has been rocking. Now we hear news that more and more investors are venturing into the stock market. So there is a herd of bulls running up this market and it is time to get a bit more careful. If all lights are green (see earlier posts) it is time to get worried because they can now only turn red. Maybe 4 out of five lights still signal a worry free run, but if then when yet another light turns red we're definitely ending up in riskier waters.

For now, enjoy the bull ride and keep an eye on our TSX target of 18,000. That was to be still 3 years out, but now that we're flying past 14,000 we have only another 22% to go. Too fast?  Maybe a correction is due later in the year. For now the momentum is forward; but we must start to wonder whether bargains are still to be found in this market.

There is no-way to know when and at what value the market will peak, but with oil over $100 in the international markets (and WTI lagging nearly by 15%), with food riots in the Middle East, we rapidly approach price levels where the economy will be pulled back to earth. China is fighting inflation and so are other developing economies. Europe is still overdebted and with severe government austerity programs. The U.S. economy is definitely in pick-up mode but mortgage defaults are still not peaking.

So don't think that from hereon the investment world is worry-free. Yet the stockmarket hasn't looked back since September. This is likely a case of too much too fast. Compared to the economy this stock market is getting ahead of itself. Start too think about what stocks you would like to sell because of poor performance. Sell the poor ones in the months to come and maybe later in the year take some profits to offset your losses and optimize your tax bill.

Second leg of the current bull Market which started in February of 2009. The current leg started last October (see post of October 8, 2010). Chart is from GlobeInvestorGold

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