We are now more than halfway through the year and the Dow is down -1.43% for 2015, the S&P is up 1.01%, and only the NASDAQ has been showing any signs of strength, up 7.44% for the year. The smooth road to new highs is going to get rougher. That’s because short profit taking starts getting a little more serious as indices approach old highs. Once through that level however, old highs tend to become support levels, just as we are seeing on the NASDAQ right now.
The fact that the number of new lows has not been shrinking, even as indices were climbing higher few weeks ago is a red flag. This number is even supposed to quickly fall to single digits during the initial phase of the short term runs of the broad market. But the fact is it has actually remained fairly high. A higher number of new lows during the advance suggest that institutional traders are unloading any stocks with potential weakness instead of wildly buying across the board as usually happens during the first two weeks of a short term advance.
These days at the Money Shows hundreds of investment gurus are giving workshops and seminars to thousands of investors. Hardly anybody is dedicating their presentation to risk management and how to avoid losses in the next bear market. However, there many workshops catering to greed like advisers enticing investors with the prospect of triple- and even quadruple-digit returns. This is a worrisome situation, because at market tops greed completely replaces fear as investors’ primary concern.
By the way, at market bottoms fear dominates greed and, that is just the opposite of what prevails today. It’s important to remember that at the Money Show held in May 2009, in the wake of the bear market, the workshop themes were all about safety, managing risk and, survival during market crashes.
As always, patience is a hard trait to develop when you are overly anxious about making money. It’s the lack of patience that leads too many people to over-trade when they should wait.
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