Zero Hedge

2/6/21

Authored by Lance Roberts via RealInvestmentAdvice.com,

In our previous report, we stated:

While I fully expect a reflexive rally next week, that will likely be an opportunity to reduce risk rather than chasing markets. Such will be the case until we see money flows start to turn positive again, suggesting some underlying buying pressure.”

While the money flow “buy signal” will likely trigger next week, the market is already trading 2-standard deviations above the 40-dma. Such suggests that the upside may be more limited over the next couple of weeks.

As I noted in Thursday’s “3-Minutes” video (subscribe for daily updates), the rally, and even the attempt at all-time highs, is well within the context of the consolidation process. With the money flow signal starting to bottom, we added exposure to portfolios this past week. 

While the money flow “buy signal” will likely trigger next week, the market is already trading 2-standard deviations above the 40-dma. Such suggests that the upside may be more limited over the next couple of weeks.

As I noted in Thursday’s “3-Minutes” video (subscribe for daily updates), the rally, and even the attempt at all-time highs, is well within the context of the consolidation process. With the money flow signal starting to bottom, we added exposure to portfolios this past week. 

While the market did rally as expected last week, the rally is still at risk currently given the more extreme overbought and bullish conditions. Speculation remains rampant, and there are many indicators from relative strength to participation that suggest “something isn’t quite right” with the market currently.

As such, we continue to suggest a modicum of caution with equity risk. While there is nothing to suggest a much deeper correction is coming, there is also nothing suggesting there isn’t.

The point of portfolio management is the management of risk. In other words, if you turn your gains into a loss, you aren’t managing risk appropriately.

Such is something Reddit readers learned the hard way last week.

It All Ended Badly Very Quickly

Last week, we discussed how the entire “Gamestop” saga would eventually end. To wit:

“Think about a crowded theatre. At the moment, everyone is going into the theatre (buying), and no one is selling. However, when they begin to try and sell their positions, no one will be there to buy from them.

Such is the equivalent of yelling “fire.” The smart ones will get out early. The rest will find themselves scrambling towards a very narrow exit. Once the price starts falling, the sellers will swamp the buyers driving the price lower. In Gamestops case, given the company’s value is around $10, where it was trading before the mania, the decline will be both brutal and fast.”

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