I believe the market has reached a temporary top today though I can’t rule out one more quick spike before the modest correction starts to set in officially.
I know that picking the top is rather difficult when Janet Yellen, the nominated Fed’s Chair told the Congress that stocks are not overvalued at all, which implies that it is absolutely OK to buy more stocks. She is like helicopter Ben continuing to favour stimulus measure via Q.E.
Do you know why the Fed wants the stocks to continuously going up? Just for one simple reason, rising Stocks creates wealth effect which helps consumer to spend more and thus enable the companies to create more jobs. It is true to certain extent but such manipulated efforts are not sustainable if the productivity and GDP are not in real growth.
I am seeing more and more inexperienced investors or traders are rushing in now and that provides a sign of an approaching market top. Remember the time (mid-May, early August, Mid-September) when everybody was so bullish and expecting Dow kept on moving higher, but they were shocked when the markets eventually moved against them.
According to Ben Rooney at CNNMoney, investors are on coming back with vengeance by throwing the most money into stock funds since the dot-com bubble back in 2000. As of today, fund inflows for October had reached $50 billion, one of the highest ever recorded. The top two months of inflows actually happened this year: $66.3 billion in January and $55.3 billion in July.
According to TrimTabs: "The inflows we've seen this year have definitely been extreme,".
By any measures, it is already too risky to go LONG at the current level. Look at the chart below.
It is time to exit the Long positions. As always, Leave the last 10% to others. Don’t chase the stocks now and don’t go greedy. As the old saying goes, be greedy when investors are fearful and very fearful when others are greedy.
Wait patiently to buy in low again in a few weeks’ time when the markets pull back to the support.