At this time, there are several popular stocks and industry groups that are loved by the talking heads in the financial news. Sure, when equities make new all time highs it is not difficult for the average trader/investor to fall in love with something. The talking heads in financial media will usually talk about all of the positive things about the equity in play. Really they are just talking up their own book (portfolio). This has been going on for years and years and I suppose it always will.
Many traders will say that they just want to stay with the trend and ride out a move higher. This is why it is important to know when a stock or equity is getting tired. I personally do this by watching the charts. Yesterday. I wrote about parabolic moves in the stock market. These patterns usually lead to a major sell-off once the surge higher concludes. It is often difficult to predict when the top will take place, but any smart chartist will just sit it out when he sees the move in the stock going parabolic. If the trader is fortunate to be in the stock when it surges higher than he or she can simply use a trailing stop loss or lock in gains when they feel content with the profit.
Bull markets make a lot of people look very smart for a while. Sometimes the entry into a trade can be bad but the trend in the bull market will rescue you and lift the equity. Hence the term, a rising tide lifts all boats. Unfortunately, everything ends and eventually the trend will change. Now trying to identify a trend change is much more difficult, especially after a major bull run. Here is a little tip that might help some traders. Market tops are a process. They take time, this is where we get the term, rounded top. Bottoms are different, they are made by exhaustion (high volume) selling. This is why a sharp decline is followed by a high volume reversal. Hence the term, V-bottom.
This market has been on an incredible bull run since march 2009. Regardless of what caused the upside action it has been very powerful and should be respected. But remember this, when everyone loves the same equity or sector and it is parabolic you might want to think about running the other way.
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