Time to be Greedy When Others Fearful? 

Only a month ago I wrote a completely opposite piece, ‘Is it Time to be Fearful When Others Are Greedy?’, and ‘Markets at New Highs, Should we be Concerned?’, warning my readers to be cautious as I saw a much higher probability of the market pulling back than the market pushing up any further.

As quarterly reporting had ended, there was a lack of any catalyst or reasons to be optimistic about the markets in general, bar specific stocks and sectors which had been severely oversold and undervalued such as the big drug manufactures.

The overall market drives over 75% of all stock price movements, and hence we must always be aware of where the market is currently at, even if we are long term investors and not just short term traders.

Some value investors will disagree and buy as long as value is evident, but I always ask; why not wait a little, and buy even more at a cheaper price like you would with groceries while the ‘whole market’ is on sale?

Although impossible to precisely time the exact point of severe market decline, there are always plenty of warning signs before the actual decline occurs, thus allowing us to move the majority of our trades back into the safety of cash and lock in any capital gains.

I have also warned in the past about the complacency of volatility traders which sometimes portray the markets to be calmer than they actually are, especially when we have extended periods of low volatility or calmness. It is these times where a surprise spike in volatility is just around the corner, like we have just seen in the past week.

See below where I have highlighted in yellow, the multiple months of seemingly low volatility calmness followed by an extreme upwards spike.

Time to be Greedy When Others Fearful?

All eyes are probably now on the support at 2120. But like all support and resistances, this can be broken.

Personally, I am hoping it breaks to the downside as this will allow patient investors and traders like us to pick up bargains we have been finally waiting for.

I often say that in times where there is a lack of long term investments, it usually means the market as a whole is temporarily overvalued.

The reverse is also true.

When there is an abundance of opportunities like we are seeing now, it also means the market as a whole is potentially undervalued and ripe for the taking.

We as investors and traders have one important job. Our job is to send our capital out to work safely, and then bring it back with a profit.

This next coming week or fortnight could just be one of these times.

So ‘be fearful when others are greedy, and be greedy when others are fearful’.

I am now in the latter camp.

Terry

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