Stock Market Early Morning Insights – December 9, 2016

I don’t believe I have ever seen the stock market this overbought.

I remember an interview with Tom Williams, the inventor of Tradeguider and volume spread analysis, when he said that strength comes on weakness, and weakness on strength. His statement didn’t seem logical to me when I first heard it, but when everyone is chasing stocks, or a market, the risk is the greatest; the opposite is true when the public and institutions want to get out of stocks at any price. This is when investors like Warren Buffet are acquiring stocks, not when everyone else wants them. To use an old cliché, you want to buy when there is blood in the streets.

We all know that this is not always the case, because generally we buy strong stock in strong groups because they tend to go higher. But when stocks are as extended as they currently are, the risk is extremely high for those who chase.

The extreme examples now are, of course, the bank stocks. They have been dominating the Top 50 GIR for weeks and continue to do so, therefore risk is high for anyone chasing the most extended stocks. Steel stock are another example. Several days ago, Semiconductor Devices were extended, risk was high, the group pulled back, and has regained buyers and strength over the past week.

If you have missed many of these trades, do not feel like you will not have opportunities in the future. There is always rotation going on in stocks and groups. Presently, Biotech, Specialty Pharma, and Healthcare stocks in general are lagging, but they will have their turn.

Futures are flat this morning. The VIX was up again yesterday as traders add protection in case of a reversal.

Protect your profits, and never let a profit turn into a loss. You may give some back, but never fall in love with a stock. It will cost you; I know.

STOCK MARKET EARLY MORNING INSIGHTS

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