Jeff's note: The stock market is in the same precarious position it was in last week, which is the same position as the week before, and the week before that. Yet stocks continue to defy gravity.
The prevailing thought is the Fed is holding the market up and will continue to do so at least until June, when the latest quantitative easing program is supposed to end. Stocks are a one-way bet until then. We can't lose.
So investors are lining up like absent-minded husbands at the florist counter on Valentine's Day, paying premium prices for wilted roses – all in the hopes the bloom will last a while longer. Of course, that's usually about the time all the petals fall to the ground.
I've been warning you about this danger for weeks... And sometimes, there just isn't anything new to say. It may be useful, however, to repeat what I wrote last April, when the market was in a similar pattern...
Tuesday, February 15, 2011
Mr. Market has indeed become the hot shooter at the craps table.
The crowd around the table is growing larger and louder. Every roll of the dice is accompanied by a boisterous cheer, and Mr. Market's winning streak continues. Even folks outside of the casino are tempted to come in and join the party.
Of course, we all know winning streaks come to an end, and every hot shooter eventually craps out – usually after covering all the numbers and when there's the most money to lose. For now, though, that's an inconvenient truth. It's more fun and – for the time being – more profitable to believe the stock market is a one-way bet and we're all smart enough to cash in our chips before reality strikes.
It's also fun to believe deep-fried chocolate bars and bacon-wrapped sausages are good for you.
I'm not trying to make a bearish argument here. That's not necessary. After all, there aren't too many people who actually believe it's a good thing to have government continue to spend far more than it receives in an effort to pump up the economy. Most people can see through the rainbow-laced economic headlines and determine today's growth is being bought and paid for with tomorrow's tax dollars.
We can all spot the storm clouds in the skies above us.
Most people, though, think they'll be quick enough to find shelter on high ground once the rains begin and the flooding starts.
That's what most people thought in 1987. It's what most people thought in 2000. But most people got soaked back then.
It looks like history is getting ready to repeat.
If you've been hanging out at the craps table behind Mr. Market, congratulations. It's been an amazing, odds-busting run. At this point, however, it makes sense to cash in a few chips and maybe even make a small wager against the hot shooter.
On the other hand, if you've avoided going into the casino up to this point, don't let the incessant cheering coax you inside. Buying stocks now is similar to buying stocks in August 1987, or in January 2000.
Keep your money in your pocket.
Best regards and good trading,
Jeff has been bearish for months. But by "embracing the dark side" of rising interest rates, flashing momentum indicators, and even the Mother Indicator, he's found a way to profit in the face of disaster…
Learn more about his new idea… and how this low-risk, high-reward trade can double the value of your investment in just a few weeks here: How to Trade the "Kiss of Death."
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