The stock market is extremely bullish at the moment. You don’t need to tell me that. Although I have been saying that the market is quite overbought and due for a sizable correction, I have been wrong till now. But does it mean that it is wrong to take this kind of bearish view point when deciding to what to buy at the moment? I really don’t think so. I have been wrong about the timing, which no one can always be right over time. But I’m pretty sure a significant correction is coming; I just don’t know in days or weeks or even longer.
I’m basically sitting on my hands at the sidelines for quite some time and avoid adding new positions for my long-term portfolios, except in very few exceptions when I see some good valuation for some stocks, such as Intel. I’m also quite active in short-term trading for quick profit for stocks such as Microsoft or Apple etc. I will be more aggressive in adding long-term positions only after a significant correction, say at least over 5% decline of S&P 500 and very depressed sentiment in the market.
My suggestion for your profitable positions? If you are the lucky ones to have good exposure to the market for the past 2-3 months and have seen sizable profit for your stocks, be cautious now and don’t let your profit slide away. When a correction hits, it can be swift with no prior warning and can wipe out your total profit within days. If you have doubled your share prices, consider to sell half of your position so that you have no risk at all after getting back your invested money while continue to enjoy potential further gain regardless how long this bull run may take. Or you may want to tighten up your stop loss, say 5-10%, to ensure you will have some profit taken if the market indeed starts to turn south. The most important thing to be successful in the stock market is to have an exit strategy and stick to it.
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