Wednesday, 1 February 2012

Market Update

In spite of fairly poor earnings and a continuing weak economic outlook, the stock market has been remarkably resilient.  While the market has pulled back for 4 straight sessions until today, it has not dropped appreciably, especially with today's rally.  However, many technical indicators continue to show the same trend of overbought positions.

Some examples below:

  • S&P 500 at almost a year high.

So again, this begs the question of what to do.  While indicators still favor a pull back, the market has been successfully resisting that move.  At this point, one has to decide which is more important: 1) Preventing downside or 2) Missing possible upside.  If preventing downside is more important (after all you can always buy back in at any time) I would recommend a shift to cash/bonds.  If you want to stay exposed for any possible upturns, keep your positions long but watch carefully with stop loss orders and/or hedge with some options.  With this market, volatility comes quick and fast.

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