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July 05, 2011 at 06:39 AM EDT
Range of Outcomes
We should always consider "the other side of the trade". When a market reaches extremes, we should contemplate the psychological impact and the likely paths going forward. Of course, we can only do that in a qualitative way.
Even though the market is overbought, the percentage of stocks above the 40 period average isn't at a typical extreme (e.g. > 80%).
Investors don't necessarily have to see the world through Main Street's eyes. Corporation XYZ can still achieve profitability and growth by squeezing workers, laying them off, or financially engineering lower multiples through changing their balance sheets to take on more debt and buy back equity. So you, I, or our neighbor can be out of work and companies do just fine. That's the maddening part of the process for the "hubris class" of central banker. They can't see why ZIRP doesn't work the way they feel it should.
Yesterday the Wall Street Journal had a headline about how investors are shunning old technology stocks. Contrarians might find that article attractive (here's MSFT).
Finviz.com futures heatmap. Who needs quantitative easing? Right?
Good trading and great risk management to all.
Educational use only. Never intended as investment advice.
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