Large-caps Good; Be Ready to Cash Out of High-risk Positions

“Ahead of the Street” Column, by Mitchell Clark, B. Comm.

If you’re a regular speculator in stocks, you’ll know that, at this particular time, there are very few attractive new buys in the market. All the great companies have already seen their stock prices go up. Even some of the hottest stocks in the market, many of which we’ve talked about in this column, are no longer attractive from a valuation standpoint. For new buyers of these stocks right now, they are momentum trades, and with that comes very high investment risk.

From my experience, great opportunities in the stock market tend to occur in waves. From the middle of October to the middle of December last year, there were some great trades in the marketplace. Many of these stocks are now hitting new record highs and are fully valued. In the very immediate term, these stocks will move
incrementally with sentiment in the broader market.

I think it’s time for speculators to consider taking some profits from their winning positions. I don’t know what the broader market is going to do later this year, but a lot of the hottest stocks in the marketplace (most of which are U.S.-listed Chinese stocks) have run up so much that they are now looking vulnerable to a correction.

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My sense is that there is enough positive sentiment for the broader market to keep ticking higher over the near term. If corporate earnings show some growth, then stocks will keep going up. If this happens, I would definitely take some money off the table as the market ticks higher. We’ll just have to wait and see what corporations report and what they say in terms of visibility for the coming quarters.

Institutional investors want to be buyers of stocks right now. They are awash in cash with nowhere to put it. The parade of ratings upgrades is gaining momentum and you can bet that large-caps will be the beneficiary of new dollars in the marketplace. In fact, there are a lot of attractive large-cap buys in the market right now.

Individual investors continue to be extremely cautious about committing new money to stocks, even in gold shares. No doubt, it’s a pro trader’s market. Fourth-quarter earnings season can’t come soon enough.