I’ve been saying for a while now that from a big-picture perspective, this is not a low-risk environment. Today I thought I would do some “esplainin” on my point of view.
First, let’s dispel the idea that my position suggests it is time to take a cautious stance. This is certainly not the case. You see, in the investing game there are times to be cautious, times to be aggressive, and times to stick with the bulls and enjoy the ride. In my humble opinion, the latter best describes the approach to be taken at this time.
Back in the early 1990’s, when the bulls were really starting to run, Ned Davis wrote, “Three hard down days in here would be a gift.” Ned’s position was clear. His models were telling him that the bulls were in control, that sentiment had become overly negative for a long period of time (remember, the “Crash of ’87” was still fresh in the minds of investors and the first Gulf War was creating havoc in the markets) and that stocks were cheap. This is an example of a time when being aggressive makes a lot of sense.
The Trend is Your Friend
Compare and contrast that position to today’s market environment. Yes, the bulls are in control. Our trend models are positive and our momentum models are “okay.” It is said that the most bullish thing a market can do is make new highs. So, with the S&P 500, DJIA, Nasdaq Composite, Midcap, and Smallcap indexes all sitting within a stone’s throw of new all-time highs, it is clear that the trend is definitely a “friend” to stock market investors at this time. And as the saying goes, “Don’t fight the tape.”
Beware of the Crowd
However, unlike during the aftermath of the first Gulf War, investor sentiment is extremely positive at this time. One can argue that this is due in large part to Mr. Trump’s and the Republican’s stunning victories in November. And I’m not the first to suggest that the current joyride to the upside represents a discounting of better days ahead for both the economy and corporate profits.
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