Overbought Doesn't Mean Over
Friday, May 11, 2007 | Teeka Tiwari
So the Fed kept rates steady, and the Bank of England bumped theirs up a quarter point, and the boys in Brussels kept their rates at 3.75%.
Let’s get right to it.
In this trader's opinion, the next big story is interest rates. The markets appear to be pricing in at least one cut, if not more. Now, I’m looking at the same data as everybody else, and I’ve got to confide in you that I’m at a loss to find the supporting evidence for a rate cut.
It cost me 50 bucks to fill up my car with gas this weekend, and no, I don’t drive a gas guzzling SUV or a fancy European sports car. (I got the expensive car craze out of blood during my twenties.)
The point is, just a few weeks ago it was $40. That’s a 25% increase in just a matter of weeks. Now, multiply that out across the entire US economy, and we can see why 85% of all reporting retailers missed sales expectations yesterday.
Look, I’m not telling you anything you don’t already know. My point today is to make sure that you don’t get sucked into the type of giddy complacency that an up market can foster in even the most level-headed man or woman.
The indicators are all still positive, albeit at very elevated levels, so my suggestion here is to maintain market exposure but cut your position sizes in half on your trades and maintain tight stops.
Markets can stay overbought for a long time, but remember, the time to be aggressively adding cash to the market is when sentiment is terribly bearish, not when it’s rampantly bullish. The market is highly predictable, i.e. it will have clearly defined up phases and down phases, so rest assured you will always have an opportunity to get on board if you are patient.
I can’t stress enough the importance of playing this game on YOUR terms, not the market's.
I wish I had more for you this week, but that’s all I’ve got. Enjoy your weekend, and remember to tread cautiously as we navigate these overbought waters.
Let’s get right to it.
In this trader's opinion, the next big story is interest rates. The markets appear to be pricing in at least one cut, if not more. Now, I’m looking at the same data as everybody else, and I’ve got to confide in you that I’m at a loss to find the supporting evidence for a rate cut.
It cost me 50 bucks to fill up my car with gas this weekend, and no, I don’t drive a gas guzzling SUV or a fancy European sports car. (I got the expensive car craze out of blood during my twenties.)
The point is, just a few weeks ago it was $40. That’s a 25% increase in just a matter of weeks. Now, multiply that out across the entire US economy, and we can see why 85% of all reporting retailers missed sales expectations yesterday.
Look, I’m not telling you anything you don’t already know. My point today is to make sure that you don’t get sucked into the type of giddy complacency that an up market can foster in even the most level-headed man or woman.
The indicators are all still positive, albeit at very elevated levels, so my suggestion here is to maintain market exposure but cut your position sizes in half on your trades and maintain tight stops.
Markets can stay overbought for a long time, but remember, the time to be aggressively adding cash to the market is when sentiment is terribly bearish, not when it’s rampantly bullish. The market is highly predictable, i.e. it will have clearly defined up phases and down phases, so rest assured you will always have an opportunity to get on board if you are patient.
I can’t stress enough the importance of playing this game on YOUR terms, not the market's.
I wish I had more for you this week, but that’s all I’ve got. Enjoy your weekend, and remember to tread cautiously as we navigate these overbought waters.
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Teeka Tiwari
Chief Investment Officer
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