You’ve heard the ads on TV, “nobody can time the market.” Over my long career I cringe whenever I hear that ridiculous notion.
When you follow fundamental analysis that may be true, as who knows what the real P/E ratios are. You check several sources you get different answers. If you followed Wall Street analysts, stocks were not cheap in March 2009. But today, they are cheap with Wall Street Journal data saying the P/E ratio for the S&P 500 is 24.94. Since March 2009 the S&P 500 is up 299.7% and now it’s cheap? I don’t think so!
If you follow simple tools of technical analysis, I say that you can “time the market. ” But it’s not a question of calling it to the day or to the level, it’s a case of offering investors prudent guidance.
In a recent post, I describe the price action as December began as a melt-up with three of the major equity averages in momentum formations I describe as “inflating parabolic bubbles.”
Even if there’s additional melt-up action, investors should reduce allocations to stocks to 50% and raise cash. If you still want to trade momentum, but have an exit strategy to lock in gains or limit losses.
Perhaps when the clock strikes 2018, profit-taking will begin as Americans enjoy new tax rates.
Today, I will show just how overvalued stocks are by referring to this scorecard: