Month: December 2013

By George Leong, B.Comm.

It’s no secret that China is the biggest market for numerous raw materials, such as cement, steel, coal, copper, and oil, along with end-products, such as vehicles and mobile phones.

The growth of the middle class and wages in the country is the vital attraction for companies to go and set up shop there. Credit Suisse estimates the household wealth in the country will double to $35.0 trillion by around 2015, based on achieving sustainable gross domestic product (GDP) growth at or near the current growth rate. Moreover, the government’s strategy to drive domestic consumption will also help to push up the demand for goods and services.

An area in the Chinese economy that I continue to believe has tremendous long-term potential is the auto sector, but the short-term will pose some hurdles due to some buying limits imposed by the government.

The Chinese motor vehicle market is the largest in the world, and it continues to distance itself from the United States. The upward demand for vehicles remains in spite of the government’s efforts to limit vehicle sales in many of China’s largest cities in an attempt to cut pollution.

As a potential market for vehicles, China remains tops. Auto sales surged 16% in November following a 24% jump in October, according to the China Association of Automobile Manufacturers. (Source: China Association of Automobile Manufacturers web site, last accessed December 11, 2013.) About 1.7 million vehicles were sold for an annualized growth of 20.4 million. By comparison, sales of autos increased nine percent in the United States in November to an annualized rate of 16.4 million vehicles, according to Autodata. (Source: “US auto sales hit fastest pace since 2007,” L’Agence France-Presse, December 3, 2013.)

Foreign automakers continue to generate some of their greatest growth in China. (Read “Where to Find the Best Potential Growth in the Automotive Industry.”) General Motors Company (NYSE/GM), which sold 212,060 vehicles in the U.S. in November, managed to sell 294,500 vehicles in China in November, making it the country’s top-selling automotive brand. What this means for U.S. investors is that you can buy General Motors as a play on the Chinese auto market.

Of course, you can also take a look at U.S.-listed Chinese auto parts makers, such as China Automotive Systems, Inc. (NASDAQ/CAAS) and SORL Auto Parts, Inc. (NASDAQ/SORL).

China Automotive Systems (CAS) is the larger of the two Chinese auto part plays. The company manufactures and distributes power-steering components and systems via eight Sino-foreign joint ventures in China. Sales in the third quarter jumped 24% year-over-year to a record $90.9 million for the quarter.

Chart courtesy of www.StockCharts.com

The chart of CAS above shows an upward channel since the beginning of the year coming off a bullish double bottom in 2009 and 2012 as the stock eyes $12.50 and $17.50, based on my technical analysis.

So while the largest automotive market in the world may be a 15-hour plane ride away, there are several U.S.-listed Chinese stocks or U.S.-based auto stocks that U.S. investors can consider in order to profit from this lucrative market.

This article Three Profitable U.S. Plays on the Lucrative Chinese Auto Market is originally publish at Profitconfidential

By David A. Banister- www.MarketTrendForecast.com

Our Last major Elliott Wave Analysis of Gold came in early September when Gold had touched the 1434 area, and in that analysis we called for a re-test of 1271-1285 levels.  This was based on our Elliott Wave Analysis of the patterns involved since the 1923 spot highs in the fall of 2011.  Our clients of course were updated on a regular basis since that public analysis and we have been looking for clues to a bottom in this Gold bear cycle from the 2011 highs.

Most recently, we noted that we are seeing patterns commiserate with what Elliott wave theory calls a “truncated 5^th wave” pattern. All Bear cycles have 5 full waves to the downside from the highs, and we have been in wave 5 since the 1434 highs.  The key then is determining how low that wave 5 will take you in Gold, and planning your investments and timing around that forecast.

To qualify for a truncated 5^th wave, you have to have a very strong preceding 3^rd wave to the downside. In this case, we had that as Gold dropped from just over 1800 per ounce to 1181 into late June 2013.  As we approached the 1181 areas, we also put out a public forecast saying that Gold has indeed bottomed and should rally strong to the upside.  Recently, Gold hit a bottom at 1211 spot pricing last week and that is when we began to consider a truncated 5^th wave pattern.

We sent our clients about a week ago regarding this possible Elliott wave theory bottom:

If we fast forward a week later, we had Gold running up to 1261 which was the pivot resistance line we told our subscribers to watch for. We hit it on the nose and backed off to 1224 yesterday.  We now expect that if GOLD holds the 1211 area, that we will again rally back up and over 1261 and then head to the 1313 resistance zone.  We would like to see Gold get over 1313 and if so our targets are in the 1560 ranges for Gold in the first half of 2014.

Aggressive investors should be accumulating quality small cap gold producing and exploration, or Gold itself depending on your preference during these last few weeks of December as our Elliott Wave Analysis is signaling a bottom is near. We would again watch 1211 as a key level to hold for this possible truncated wave 5 to work out.

Join us at www.MarketTrendForecast.com for regular Gold & SP 500 Elliott Wave Analysis updates.

By John Whitefoot for Daily Gains Letter

When it comes to building a balanced portfolio, investors like to find stocks that provide both value and growth. If you’re a value investor, you’re always on the lookout for companies that are cheap relative to their earnings, assets, or price-to-book value; in other words, they look for what’s undervalued.

A growth investor, on the other hand, likes to look at publicly traded companies that are in a position to rapidly increase their revenues and profits; they want stocks with excellent long-term growth potential. This could include those stocks that have provided revenue and earnings guidance that is expected to outperform the market or industry.

While sticking with one strategy over the other can work, it can also lead to lurching gains when your investment strategy hits economic headwinds. However, combining both strategies can produce more consistent returns.

But if profitable investing really was that easy, everyone would be following this investment strategy, which means no one would be making money.

The fact of the matter is that in this economic environment, it’s pretty tough to find unloved, overlooked value and growth stocks. That’s because virtually everything is going up.

The S&P 500 is up 26% year-to-date and 15% since its pre-Great Recession high. Not to be outdone, the Dow Jones Industrial Average is up more than 21% since the beginning of the year and up roughly 13% from its pre-recession high. The NASDAQ is hands down the top performer so far this year, up 30% since January 2 and more than 40% since peaking in 2007.

In a bull market where it seems like everything is going up, it’s getting increasingly tougher to find stocks on the S&P 500 and exchange-traded funds (ETFs) that appeal to both bargain hunters and growth gurus.

Or rather, it’s getting tougher to find stocks that have a legitimate chance to make solid gains in both the current artificially low interest rate environment and the one that includes any tapering of the Federal Reserve’s $85.0-billion-per-month quantitative easing strategy.

Let’s also not forget the ability of a company to grow in the lengthening shadow of tepid economic growth. An increasingly large number of companies on the S&P 500 have been revising their quarterly earnings lower. So far, 92 (89%) of the S&P 500 companies have already issued negative earnings guidance for the fourth quarter.

While the companies that actually make up the S&P 500 are seemingly cautious about 2014, those who watch the companies that make up the S&P 500 are a little more optimistic.

Some analysts are predicting the S&P 500 will grow just six percent, from its current levels to 1,900, by the end of 2014 and 17%, reaching 2,100, by the end of 2015; others predict the S&P 500 will grow by 20% by the end of 2015. (Source: Ro, S., “Goldman Sachs’ Outlook For Stocks Looks A Lot Like Jeremy Grantham’s Bubble Scenario,” Business Insider web site, November 21, 2013.)

No matter how you slice it, the Wall Street prognosticators are predicting the S&P 500 will continue to notch up its record highs for at least the next two years. That still means it will continue to be difficult to find value and growth stocks.

However, there are some great value stocks out there with solid momentum that investors may want to consider; these companies include Federal-Mogul Corporation (NASDAQ/FDML), Ferro Corporation (NYSE/FOE), and Federal Signal Corporation (NYSE/FSS).

Source: http://www.dailygainsletter.com/stock-market/these-value-and-growth-stocks-could-outperform-the-bull-market/2213/

London Gold Market Report

from Adrian Ash

BullionVault

Fri 13 Dec 08:35 EST

LONDON gold in Dollars terms traded flat for the week Friday morning, holding around $1230 per ounceafter what one analyst calls “a tumultuous few days.”

 Stockmarkets ticked higher but London’s FTSE100 headed for a 1.5% drop on the week.

 Silver also erased the last of its mid-week gains, which reached 5.0% yesterday morning, to trade back at $19.55 per ounce.

 “Given the magnitude” of this week’s spike and retreat, says brokerage and trading house INTL FCStone, “we think that gold now has a good chance of retesting its 2013 lows before the year is out.

 “[Gold] may even have a shot of breaking it.”

 “Next week will be a critical time for the precious metal, and the beleaguered gold bugs still keeping the faith,” says the note. Because the US Federal Reserve will announce its final policy vote of 2013 next Wednesday.

 The Fed may start to taper its $85 billion per month of quantitative easing “in the near future,” says Commerzbank in Frankfurt, pointing to this week’s strong US retail sales data and the federal budget deal between Republican and Democrat politicians – “possibly as early as next week.”

 After the debt ceiling shutdown of October, “A smooth outcome in Washington poses several challenges for gold,” reckons UBS analyst Joni Teves, forecasting a stronger Dollar, better economic growth and earlier tapering by the Fed.

 “Lower gold after the taper, but a collapse is not likely,” reckons Bart Melek, strategist at TD Securities.

 “Gold should firm due to the Fed’s zero-bound [interest rate] policy,” he writes. [Because] this should reduce real yield increases and keep the opportunity cost [of owning bullion, and so not receiving interest or dividend payments] from rising too sharply.”

 Reviewing 2013 overall, “The biggest downward pressure on gold this year,” says the commodity team at French investment and bullion bank Natixis, “came from talk about Fed tapering and the improving US economy.”

 Furthermore, “Many of the key pillars which had previously supported the gold price began to erode” this year it says, pointing to lower central-bank demand, investment outflows from gold ETF trust funds, and the block on Indian demand due to government anti-import rules.

 Rising mining costs, however, “will ultimately put a floor under prices at somewhere around $1150 per ounce.”

 “The gold bull market ended in 2011/12,” said bullion, retail and investment bank HSBC’s Charlie Morris, head of absolute return at the Global Asset Management division, to CNBC yesterday.

 “There was a very clear top, and we’re now in a very clear bear market. We continue to believe that gold is going down.”

 The last 5 bear markets in gold, says Morris, have cut prices by 48%. “That takes us down to $950 or $1000 level.”

Adrian Ash

BullionVault

Gold price chart, no delay | Buy gold online

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can fully allocated bullion already vaulted in your choice of London, New York, Singapore, Toronto or Zurich for just 0.5% commission.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By Mitchell Clark, B.Comm.

Wall Street analysts are warming up to Johnson Controls, Inc. (JCI), and it’s understandable why. I’ve been bullish on this stock for some time now. The company has strong earnings visibility going into next year, and management recently bumped its quarterly dividend payment significantly higher.

Even though the stock is up about 50% over the last 12 months to a new record high, the company’s 16% dividend increase and new $3.65-billion share buyback program is exactly what institutional investors want. Earnings expectations for Johnson Controls are increasing across the board. (See “If You Don’t Want to Leave This Market, Stick with These Proven Winners.”)

One of the most prolific trends in the stock market over the last few years has been the strong performance of dividend-paying blue chips. Many brand-name, old economy companies have been trading like fast-growing technology stocks.

The marketplace has craved the relative safety, earnings stability, and dividends from corporations whose balance sheets were only getting stronger. It’s a trend that I think is far from over, and it’s why I’m a fan of existing winners. Johnson Controls’ two-year stock chart is featured below:

Chart courtesy of www.StockCharts.com

Any Wall Street enthusiasm for this company is based on a solid earnings outlook and the continued strong performance in automobile manufacturing.

Johnson Controls manufactures seats, doors, instrument panels, and all kinds of vehicle electronics. Management is thinking about selling its electronics business that’s related to the automotive market. This business segment is relatively small compared to the company’s manufacturing of seating components.

In its previous fiscal year, the company paid dividends of $0.52 per share; revenues were $28.5 billion; and the company incurred a loss of $661 million.

Fast-forward to this past fiscal year, which just ended on September 30, 2013, and the company paid out $0.76 per share in annual dividends; revenues were $42.7 billion; and earnings came in at $1.2 billion.

While Johnson Controls was founded by Warren Johnson, a college professor who installed his own thermostats in classrooms, the company now has a great deal of exposure to the automotive manufacturing market (particularly in seating with $16.3 billion in global sales in the most recent fiscal year).

Johnson Controls has already appreciated substantially on the stock market, but I can see this position ticking higher still, as current expectations are for a 17%–18% gain in the company’s earnings this fiscal year.

The company’s cash position is going up, long-term debt is down from the previous fiscal year, and another dividend increase would not be a surprise.

While Johnson Controls isn’t a growth story in terms of sales, it is in terms of earnings. Like so many other corporations over the last several quarters, bottom-line growth is happening on mediocre sales because operations are about as lean as they can be.

Johnson Controls is a dividend-paying stock that can leverage the strength in the automobile manufacturing sector near-term. This is a stock poised for more capital gains.

This article A $35.0-Billion Company Poised for Growth? is originally publish at Profitconfidential

By HY Markets Forex Blog

Gold prices bounced back to the green territory on the last day of the trading week after two losing sessions.

Gold futures for February delivery gained 0.16% higher, trading at $1,226.90 an ounce at the time of writing, picking up from its two loosing sessions, with a decline of $1,210.10 hit on December 5, marking its lowest prices since July 5. While Silver contracts for March 2014, dropped 0.51% lower at $19.335 an ounce at the same time.

Holding in the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust; came in at 827.60 tones on Thursday.

The US dollar index, which measures the strength of the US dollar against six major currencies, came in 0.05% higher at 80.247 points.

Gold Prices – US Jobs Data

On Thursday, the US Department of Labour posted its initial jobless claims for the week ending December 7, the figures showed that the initial jobless claims rose higher than forecasted, compared to last week’s trend which showed November’s unemployment rate declined 7%, the lowest since 2008.

Meanwhile, the US Census Bureau released the retail sales data from November. The US retail sales climbed 0.7% higher in November, reports from the Department of Commerce confirmed on Thursday.

With the prices of gold is being directly connected to the developments from the US labour market, the fresh data on the US jobless figures is expected to push back tapering before the Federal Reserve’s meeting  scheduled for 17-18.

Gold Prices – US Budget Deal

On Thursday, the US house approved the budget deal that would end some automatic spending cuts, drafted by the House Budget Committee Chairman Paul Ryan, Senate Budget Committee Chairman Patty Murray and Majority Leader Harry Reid.

The two-year deal counts on spending for the current fiscal year of $1.012 trillion.

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The post Gold Prices Bounces Back In Green Territory appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

By HY Markets Forex Blog

The New Zealand dollar dropped against the US dollar on Friday, while the Australian currency declined to the weakest level since September 1, after comments from Reserve Bank of Australia (RBA) Governor Glenn Stevens.

The New Zealand Kiwi dropped 0.36% lower to $0.8218 against the US dollar as of 6:44am GMT.

Manufacturing Rises

The manufacturing sector grew for the twelfth consecutive month on November, according to the BNZ-BusinessNZ Performance of Manufacturing Index, which showed the Index came in 56.7 in November.

RBNZ

The kiwi’s advance came after the Reserve Bank of New Zealand (RBNZ) hinted it would increase key interest rates to stay with the inflation target of 1% to 3%, the bank maintained its interest rates at 2.5% as forecasted.

“Annual CPI inflation increased to 1.4% in the September quarter and inflation pressures are projected to increase,” RBNZ Governor Graeme Wheeler said. “The extent and timing of such pressures will depend largely on movements in the exchange rate, changes in commodity prices, and the degree to which momentum in the housing market and construction activity spills over into broader cost and price pressures,” he added.

Australian Dollar

The aussie dropped to its lowest level since September 1, extending its decline against the greenback on Friday, following comments from RBA Governor Glenn Stevens.

The Australian currency slipped 0.16% lower to $0.8922 at the time of writing, and dropped 1.85% from the previous session’s high $0.9082 after the unemployment rate for the country was posted.

“To the extent that we get some more easing in financial conditions, at this point it’s probably more preferable for that to be via a lower currency at the margin than lower interest rates,” Stevens said.

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The post New Zealand Dollar Declines; Aussie Drops to 3-Month Low appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

By Michael Lombardi, MBA

I turned bullish on gold bullion in 2002. At that point, gold bullion was trading around $300.00 an ounce. Now, it trades above $1,250. Simple math suggests this is an increase of about 260% in 11 years, or an average gain of about 23.6% a year.

Other asset classes, like stocks, haven’t performed this well. In 2002, the Dow Jones Industrial Average was trading near 10,000. Now, it hovers close to 16,000, up 60%, or an average of 5.45% per year, over the last 11 years.

The big question from my readers these days is “If I buy gold here at $1,250 an ounce, will it more than double again?” My answer to this is YES, because I see gold moving to $2,500, even $3,000, by the end of this decade, if not sooner.

You see, over the past few months, we have seen a significant amount of negativity in the gold bullion market. On some days, the precious metal’s price has fallen more than two percent in a matter of minutes (I will let authorities eventually decide if it was a case of manipulation). But when no one wants a particular type of investment, that is often the best time to buy. Go back to 2009, when the stock market was plunging. No one wanted to buy stocks. In the midst of it, in the spring of 2009, we saw one of the best buying opportunities for stocks ever. I believe gold bullion is in a very similar situation today.

At the center of the “gold story,” aside from the fact that central banks are buying gold again for their reserves, demand by the countries that are known to be the biggest consumers of the precious metal (I’m talking about India and China) keeps climbing.

While the Indian government and its central bank have been trying to curb demand for gold bullion by its consumers, this has only given birth to an unprecedented level of gold bullion smuggling.

According to the World Gold Council, 150 tonnes to 200 tonnes of gold bullion will be smuggled into India this year. Between April and September, Indian customs authorities seized almost double the amount of gold that was smuggled into India in 2012. (Source: Reuters, December 4, 2013.)

In an effort to curb the smuggling of gold bullion into India, Mumbai customs authorities said that they will give a reward of 50,000 rupees per kilogram of gold confiscated as a result of tip-offs. Rewards for informants who lead customs to cocaine and heroin seizures are only 40,000 rupees and 30,000 rupees, respectively!

In China, demand for the precious metal is strong, too. In October, imports of gold bullion from Hong Kong into China were registered at 121.19 tonnes—the second-highest amount on record after March of 2013, when 136.185 tonnes of gold bullion was imported into China from Hong Kong. (Source: Reuters, November 27, 2013.)

From a technical perspective, when you look at a short-term chart of gold bullion prices, you will see nothing but negativity. You have to keep in mind that in the short term, emotions and speculation prevail. The best idea is to look at the long-term picture, as the chart below of monthly gold bullion prices illustrates.

Chart courtesy of www.StockCharts.com

The above chart suggests the long-term trend of gold bullion prices is still intact—I don’t think anyone can deny this. At the same time, an indicator of momentum that I watch closely called the moving average convergence/divergence (MACD) suggests the bearish pressures are bottoming out (I’ve circled this in the bottom right of the chart).

From a big-picture point of view, we continue to see an unprecedented amount of easy money. Inflation, which the precious metal really protects against, seems to be subdued, according to the government figures; but the average American Joe will tell you that inflation is much higher than what the official figures say.

For investors, I see great opportunities in the gold mining sector.

This article Opportunity for Gold Today Same as It Was for Stocks in 2009 is originally publish at Profitconfidential

By Sasha Cekerevac for Daily Gains Letter

Do you feel wealthier today compared to last year?

According to the Federal Reserve, you should, as the household net worth of Americans rose 2.5% between the second and third quarters of 2013 for a total of $77.3 trillion. (Source: “Financial Accounts of the United States,” Federal Reserve, December 9, 2013.)

The Federal Reserve calculates household net worth by looking at the value of stocks, homes, and other assets, minus mortgages and debts.

In fact, the nominal total wealth is at a record high. Adjusted for inflation, the current level of net worth is approximately one percent below the peak prior to the Great Recession. On paper, it appears as though economic growth is booming thanks to the Federal Reserve.

But if you’re like most Americans, you’re probably skeptical of this so-called economic “growth,” and rightfully so, since the underlying fundamentals of economic growth really are missing.

While we are seeing some jobs growth, it’s obvious that the current situation is far from ideal. Millions of people remain unemployed, and the jobs being created are of poor quality.

However, because of the Federal Reserve’s easy money printing, asset prices have been boosted upward, creating a significant amount of wealth for the top portion of America’s society.

Over the long term, we cannot have sustainable economic growth if only the top five to 10% of Americans participate. While the Federal Reserve has tried to create economic growth for everyone, the policies are quite clearly tilted toward the very wealthy.

What does this say about the current level in the stock market?

Many people in the mainstream media are stating that the current market is not in a bubble. My response is simple: if the Federal Reserve reversed all levels of money printing and increased interest rates to a normal level, would the stock market remain where it is today? I think the answer is quite obvious: no, stocks would not be at such lofty levels.

If the stock market is artificially inflated through Federal Reserve policies, what does this tell us about the health of economic growth in America? Is everything artificially inflated by the Federal Reserve?

If that’s the case, how useful is this information that Americans continue to increase their level of wealth? To me, if the foundation of a house is unstable and made of sand, it will simply fall apart over time compared to a stronger base built from concrete.

Where does this leave the Federal Reserve?

Clearly, the Fed wants to begin reducing its asset purchase program, as even it knows that at some point, there will be significant negative ramifications.

What happens to economic growth and the stock market if this were to happen and interest rates eventually rise? I think we could see a significant sell-off at that point.

You might be asking, if this is the case, why doesn’t the Federal Reserve continue printing money forever?

The problem in this situation is that asset prices might continue rising, but the value of the U.S. dollar will continue to erode. Just like printing more “Monopoly” dollars, more paper doesn’t mean stronger economic growth.

Over the next few years, we’re left with two possibilities: either stocks sell off significantly, or we get inflation from continued money printing by the Federal Reserve in its attempts to spur economic growth.

I think the Federal Reserve will always err on the side of more money printing to stimulate economic growth, which leads me to believe that the value of precious metals like gold and silver should also increase in price.

Considering the discounted value for precious metals, and the continued money printing by the Federal Reserve and other central banks globally, I think this is an opportune time to accumulate precious metals while they are still on sale.

Source: http://www.dailygainsletter.com/precious-metals/the-for-sale-sign-on-precious-metals/2205/

By Moe Zulfiqar for Daily Gains Letter

Increasing optimism towards the key stock indices worries me. In the beginning of 2013, you would hear the bears’ opinions all over the financial news channels. Now, it seems they have all disappeared—or have turned outright bullish. No matter where I look, it’s pretty much the same opinion across the board in the mainstream: key stock indices are going higher, they say.

When I see all this, a quote from Sir John Templeton comes to my mind. He said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” (Source: SirJohnTempleton.org, last accessed December 11, 2013.)

You see, I remember exactly what happened in 2007. The opinions toward key stock indices back then were similar to what they are now. I remember watching financial news channels that were overrun with optimistic views on the key stock indices. We were assured nothing was wrong and all was well. Those who spoke against the rising stock markets, the news anchors laughed at them and questioned if they were still in touch with reality. Following this, we saw one of the worst sell-offs on key stock indices in history.

As it stands, the optimism towards the key stock indices today is increasing, while the fundamentals that drive the markets higher are weakening.

For example, corporate earnings outlooks—the main driving force behind the stock market—are looking grim. One can get a general idea of corporate earnings by looking at the guidance provided by companies on the key stock indices. Companies know their business and can see when conditions change well before anyone else.

For the fourth quarter, companies on key stock indices look worried.

Consider this: as of December 6, 103 S&P 500 companies had provided guidance about their corporate earnings for the fourth quarter. Sadly, almost 90% of them issued a negative outlook about their corporate earnings. (Source: “Earnings Insight,” FactSet, December 6, 2013.) This is something you don’t want to hear when you are betting on a rally in the key stock indices.

This optimism we see now shouldn’t be taken lightly; it can tell us where the key stock indices might be going next.

With this, one must wonder, have they reached the top? Are we in a state of stock market euphoria?

As I’ve written in this column before, it’s impossible to predict the exact tops and bottoms on key stock indices. Increasing optimism certainly indicates that we might be nearing a top, but time will draw a better picture.

You have to keep in mind that this can go on for a while. Irrationality tends to stretch, but reality will eventually strike. The key stock indices made a top in 2007, but then the sell-off didn’t really come until late 2008.

Looking at the behavior of the markets, it seems the irrationality trade is still on. In the near term, key stock indices might head higher. As this happens, investors should remain very cautious, and not take unnecessary risks in order to gain that one extra percent of profit, as this could greatly hurt their portfolio if the market finally does turn.

Instead of reacting to short-term market gains, investors should consider taking preventative steps to protect their portfolio in case the key stock indices turn unexpectedly. One option is to take some profits off the table—by doing this, the worst-case scenario is still profit. At the same time, investors could consider placing a stop loss on their holdings to minimize their potential losses. Finally, investors may hedge against a decline in the key stock indices—and, in fact, even profit from it—by looking at exchange-traded funds (ETFs) like ProShares Short S&P500 (NYSEArca/SH). This ETF increases in value by one percent for every one-percent decline in the S&P 500.

Source: http://www.dailygainsletter.com/stock-market/current-stock-market-euphoria-a-carbon-copy-of-2007/2215/