In today’s Money Morning I’ll show you why late-comers to the recent stock market rally shouldn’t panic. As I’ll explain, the market is at a key point that will likely catch a lot of investors and traders off guard.
Don’t Chase This Stock Market Higher
As the All Ordinaries continues to rally I’m sure there are plenty of people with itchy trigger fingers wanting to join in the fun. All I can say is step back and look at the big picture.
I may not have seen this stock market rally coming but I do have enough experience to know when a market has become an accident waiting to happen.
This weekly chart shows you that the S&P/ASX 200 is now nudging up against the 4950-5000 region where it has failed five times in the past three and a half years. It is also approaching this area with its Relative Strength Index (RSI) the most overbought it has been since mid-2007 just prior to the crash.
ASX 200 Weekly Chart
Even if we’re heading higher in the long run, there is a strong technical case that this market should at the very least have a substantial correction from here. It’s still early days and the momentum is still firmly up but the music can stop very quickly at major resistance levels such as this.
So if you’re panicking that you need to buy high yielding stocks now or be left for dead, don’t panic. Just be patient and you’ll get an opportunity to buy stocks at a cheaper level than here. Just remember that we’re heading into earnings season and a dose of reality may stop this stock market rally in its tracks.
In fact, I sat down with Kris Sayce the other day to chat about the current state of the stock market and what the charts were showing me in a strategy session which is reserved for paying subscribers.
(Ed note: you can get access to Murray’s latest Strategy Session plus gain access to the Strategy Sessions archives by taking out an obligation-free subscription to our best value investment advisory, Nick Hubble’s Money for Life Letter. Click here for details…)
During our chat I showed Kris that one of Australia’s biggest stocks has hit a key inflection point. It’s key because eight of the past 10 times that this set-up has occurred, the stock has fallen. In one case by 25% in four months.
That’s a big drop, and with the odds in favour of it happening again (my share trading is based on the balance of probabilities) a lot of traders and investors will be caught out.
As I like to say, they’ll be ‘long and wrong’ and they’ll pay for it with big losses.
So if you’re feeling that you’ve missed the stock market rally, don’t panic; another investment opportunity to buy at a better price isn’t far away.
Murray Dawes
Editor, Slipstream Trader
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