Should You Buy While Everyone Is Selling?
Commodities have led the asset markets higher driven by strength in crude and gold. Crude has powered above $112 possibly on the way to the projected target of $125 in mid April — even in the face of a pullback.
The Commodity Research Bureau Index (CRB) made new multi year highs Monday, April 11 before reversal. Many overextended bullish resource runs need some healthy profit taking pullback. Straight up is not sustainable and the flush out of protective trailing stops clears the way for higher moves.
It is worth mentioning that the markets need to be judged on a weekly basis to prevent overreaction to daily events. One day does not change a major trend, the follow through or failure to confirm that counter move is important to evaluate. EVERY downward push has recovered to new post crisis highs in assets across the board.
Human nature has many investors exit on downturns. Personally it’s worked better for me to exit positions on strength — clearly that’s also what I strive for when I make recommendations to my Resource Trader Alert subscribers. Surging moves occur when traders are pilling in and acting emotionally about a play. They are finally convinced and don’t want to miss out on profits, often without analyzing the risks. That can be the best time to sell — when everything looks its best.
Over the past year, those who went short on selloffs to pick tops in assets have been used and abused. The window of opportunity on the downside is very small with precise entry and exit to catch the quick profits. The most impressive action has been not what the market has done but rather NOT done over the last months in the face of potentially destructive news. Short-term bursts of selling have failed to break the bull market.
Action late April showed a slowing of the negativity and only a modest flight to safety in bonds, up less than one percent. Stocks were down 1% as Alcoa earnings disappointment led the news. Contrast that with the 3-4% declines in crude and gold and the price action appears to be unwinding as opposed to the real fear of a market reversal.
The reverse of entry on weakness provides a much better level to start. The downside risk is less if you can be patient and gutsy enough to buy when everyone else has exit anxiety. Resource expert Rick Rule stresses the “out of favor” approach to investing that has done him well and worth contemplation. Buy when there are sellers and Sell when there are buyers.
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