We are certainly seeing a different market than we have been accustomed to. I mean the markets have not even had 2 consecutive down days over the last 2 months. It seems like company after company is reporting better than expected numbers, although I think that is a product of completely underestimating. The markets are definitely in a shifting mode. How long this last? Who knows, but perhaps it is time to cash out this year’s early winners.
Here is why…
When a particular sector or sectors are getting beat down, traders invest their money into other sectors (obviously). They will stay there until they think the beaten sectors are primed to be bought up. We saw this with technology not to long ago. In this case the bad sectors include banks, basic materials, and oil, while special stocks like Netflix (NFLX) and Amazon (AMZN) experienced great returns.
But where does the money come from to invest back into these sectors…
The money has to be taken away from the stocks like Amazon and Netflix. Quite simply, this leads to those stocks coming back down to earth, while we shift focus to these other sectors.
So is it time to cash out this year’s early winners? I would at least take some profit off the table. Remember stocks cannot keep going higher and higher. At some point they will experience sideways or downward movement. The last thing you want to do is a hold a stock that goes from 50% to -10%. Sadly, I have done this once or twice in my trading history…