Only two weeks ago the entire world was bracing itself for another ’GFC’ style correction just after Brexit.
At the time I encouraged those who were willing to go against the crowd to think contrarian and take advantage of correction style low prices and ‘Be greedy when others are fearful’ in a piece I wrote, ‘Brexit Is Now a Reality, Now What?’.
The markets are now at a new high, so the reverse is true. ‘Be fearful when others are greedy’.
Although the United Kingdom (UK) has finally selected the first female prime minister since Margaret Thatcher a quarter of a century ago and given the country a little bit of stability, there is still much work to be done navigating the UK out of the European Union (EU) smoothly over the next 2-3 years without jeopardizing the recovery of the UK economy and potentially the recovery of the world economy.
The market currently seems quite complacent in regards to the inevitable unwinding of extremely loose monetary policies where unprecedented negative interest rates seem to now be the norm.
We are in unchartered territory and have no precedent of what is suppose to happen next. Call this an experiment if you will, and this does make me quite nervous.
Who in their right mind would lock in 20-30 year fixed term investments (long term bonds) for sub 1-2% returns?
Obviously some do and for those willing to take such low returns, one can only justify that by thinking global economic collapse is around the corner so the return of their capital is currently far more important than return on their capital.
With nowhere else for capital to go as confidence seemingly returns back into our financial system in the short-term, stocks seem like the next logical choice. But is it?
Although I don’t expect a bear market anytime soon, I do believe the recent run up of the markets to new highs maybe unsustainable and a pull back is imminent in the short to medium term.
You only have to look at simple momentum indicators like the RSI that’s telling us to just be a little more cautious.
Personally, I am looking for any signs to exit and lock in profits of my shorter term trades which were purchased at Brexit lows, and also take advantage of selling any over-valued longer term investments in this optimistic new high atmosphere.
Like me, you may also want to be a little more cautious in this current environment, than be complacent and get caught out on the likely reversal.
Only time will tell how high the markets go from this point forward, but we would rather be cautious and protect our profits and capital where we can than ‘hope’ that the market goes higher due to greed.
This is definitely the time to ‘Be fearful when others are greedy’.
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