Market overview
We are still sifting through the data, and indications point toward bullish readings surging past 55, even reaching as high as 56. Moreover, as highlighted in the following story, the enthusiasm among Americans for stocks is remarkably high, a sentiment not witnessed at this level since 2021.
https://finance.yahoo.com/news/american ... 58368.html
In light of this, it’s time to err on the side of caution. Given the prevailing momentum, it's likely that the markets will continue to chug higher into the next year, and bullish sentiment readings may well reach 60 before the markets reach their peak. However, attempting to pinpoint the exact top contradicts the fundamental principles of mass psychology, which advise caution when the masses exhibit excessive bullishness. In light of this, we are choosing to scale back on holdings in popular sectors and redirect our focus toward holdings in overlooked sectors.
Next year, several tech companies should experience significant pullbacks. One should not panic if this happens. It’s the latecomers that will give into fear as corrections from the peak to the low will feel very sharp, particularly for those who bought near the top. Remember, this is a normal part of the market cycle. It typically involves an uptrend, followed by a downtrend, then a base formation, and eventually, the uptrend resumes.
The notion of a bear market, advocated by some experts, needs to be reconsidered as the Dow has recently reached new highs. However, caution is warranted, as warning signs, particularly from NVDA and similar players, have surfaced. Despite the Dow and NDX achieving new highs, the pattern observed in NVDA is currently less than bullish. Notably, it has been facing challenges in breaking out since August 2023.
In summary, as people trend towards a euphoric mindset, it's prudent to reduce exposure in preparation for reallocating capital into similar assets, but at considerably lower prices. Remember that certain sectors should continue to flourish or remain resilient amidst the turmoil. Those that have been lagging behind or are trading in the highly oversold zone on the monthly charts are the ones that will offer the most favourable opportunities.
Finally, it's worth noting that numerous fills have been reported on the plays for which we provided "sell targets" in the December 18th update.
