Good Morning. I'm sure you've heard all the bear arguments by now. Stocks simply can't go any higher because the major indices are overbought... because the rally is extended... because the rate of change is too high... because the Fed is artificially inflating prices with their QE efforts... and/or because market sentiment has become too optimistic. However, it is important to understand a couple things. First and foremost, let's remember that this is Ms. Market's game and she can do any damn thing she wants, any time she wants. And second, we need to recognize that all indicators don't work in all market environments.
If you are going to try to manage the risk/reward relationship of this bucking bronco called the stock market, I believe it is vital to understand that you need different tools for different jobs. For example, the same pedal-to-the-metal, aggressive approach that worked well in the 90's was a disaster during the "Tech Bubble" bear of 2000-2002 and the "Credit Crisis" bear that occurred from mid-2007 through early-2009. And by the same token, using the capital preservation techniques that saved your bacon during the bear markets has meant missing out (or worse) on the tremendous opportunities for profit that have presented themselves during the 2003-2007 and 2009-?? bull market cycles.
Granted, I am using big-picture examples here. But the same concept holds true on an intermediate-term basis as well. While the bears continue to grouse about the overbought condition or how long it has been since the market has seen a correction, they fail to realize that when stocks are on a roll, an overbought condition is a sign of strength and not a reason to try and call the top of a move.
The exact same idea can be applied to the sentiment indicators. As ...
