Thanks for the favourable comments to all concerned. I've mentioned a few times Stan Weinstein's book on 'How to profit in bull and bear markets'. His theories and methods are pure and simple, and has made me tune out more from the media and more into the action. Simple stories he's given such as this one 15 dollar stock with a high PE ratio of say over 35 broke out into an uptrend. All the experts were saying that on the fundamentals that stock was well overpriced and couldn't maintain its uptrend. But the stock kept going up, and up, defying all the pundits, eventually hitting 45 dollars or so. By then the PE was well and truly high, but the bottom line was the stock rose and the chartists won and the fundamentalists lost.
So for now I feel the sentiment is turning, from the US employment figures, to consumer spending, to business investing, and some fancy terms I don't pretend to understand. What I would look out for is harmony with the sentiment and with the market action. If they're both working together and downwards, if the market becomes reluctant to rally on good news, if the market drops like a stone on the slightest whiff of negative news, then it could be your cue to well and truly remove all profits and into the bank until things stabilise.
At the beginning of this year I had noticed the market had well and truly become compressed, where on some occasions some really awful news had come out of the States only to have to the market drop a half a percent. That was a major difference to what I remember early last year. There was one night where virtually everyone was holding their breathe in anticipation for the USA to drop the interest rates. Was it going to be half a percent? Was it one percent or more? The cut turned out to be a measly 0.25% and the market spat the dummy and went down something like 2.5%!
From the beginning of this year until now I was generally very optimistic and tried to offer differing angles. Have a look at my posts to back that up. I'm not bearish but my bullish sentiment is waning. We need to look out for the break of the support line and let's see if the 50 day moving average line crosses below the 200 day MA line.
But the stupid reality is even if that Golden Cross dies into negative territory there's no guarantee that the Dow cannot turn around and ramp up well over 10,000! That's awful reality of stock trading. These sharp hard drops are usually what throws many out of the market for good - specially once they see their sold stocks fly up and away like a bird.
Profit taking gives you an edge. It rewards you for your hard work, but also leaves the remaining shares in the system to keep working for you if the market does rebound.
