Dissecting The Market

By seadmin

To say that the current market is overbought would be the height of understatement.

The major averages keep making new multi-year highs. As a result, the indexes keep getting further and further away from their short- and long-term moving averages. The question now becomes can stocks continue to go higher. If so, how long will they rise?

Of course, stocks can go higher. I am never one to underestimate the power of the mob mentality when it comes to buying equities. But what you have to ask yourself here is how much do you think you will benefit by committing your money to a market that already has gone ballistic?

If you enter the market now at these highly overbought levels, do you think your chances are good that this market will propel you higher for months to come? I’ve been in the investment field for nearly three decades and I can tell you from my experience that bull runs like we’ve seen over the past several months don’t often last.

Perhaps one way to "see" the over-extended nature of this market is to look at the chart of the Russell 2000, as represented by the iShares Russell 2000 (IWM). As you clearly can see, this measure of small-cap stocks is way above its 50-day moving average that is represented by a blue line. Normally, we could see a red line in this picture reflecting the longer-term 200-day moving average. But IWM has been so extended now for so long that the 200-day average is completely out of the picture.

When things start looking this way, it’s high time to think about safety first, as well as not putting your money at any undue risk.

Let’s step away from the major market averages and get into the details of one sector we’ve allocated to in my Successful Investing advisory service — gold. In this chart of gold, as represented by the street TRACKS Gold (GLD), we can see a big run up in the value of the yellow metal since the beginning of the year.

From its low of just more than $60 to a high of just under $67, GLD has made a nice move higher this year. Fortunately, we’ve been able to capture a lot of upside for Successful Investing subscribers.

The real test for gold, as I see it, is the $67 level. There’s a lot of technical resistance and the key to gold’s future — at least in the short run — is to see if it can break above the $67 mark. If gold can surpass $67, then we are liable to see more shine ahead.

However, if gold fails to make a move above $67 or if its value begins sliding from current levels, we could be witnessing the end of the gold rush.

Either way, Successful Investing subscribers will be ready to make the right moves in gold. How? Because we always know when we are going to sell every position we enter before we buy anything. This way, we eliminate the guesswork involved in knowing when to get off a sinking ship and we can jump into the lifeboat with a tidy bag of profits in hand.

Want to find out more about how to manage risk in the equity markets with Successful Investing? Click here.

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