By Cam Hui :In my last post, I wrote that
The most likely scenario is that U.S. stocks will follow the
election cycle and continue to grind upward, though in a highly
choppy fashion.
While I still believe that equities will continue to grind
upward, stocks appear to be a little extended in the short run. My
inner trader tells me to pull in my horns, raise a little cash and
wait for a better entry level. This is strictly a tactical trading
call with a time horizon of a week or so.
The chart of the SPX shows that the market has been exhibiting
the bullish pattern of higher highs and high lows since early June.
In the short run, however, the market is now testing secondary
resistance (dotted line) and faces further resistance at about 1%
higher from current levels.
Click to enlarge:
My short-term overbought/oversold indicator of the
risk-on/risk-off trade shows the risk-on trade in overbought
territory.
Click to enlarge:
While an overbought market can get more overbought and there is
further potential upside of 1% in the broader averages, the
risk/reward ratio at this point is not tilted favorably for the
bulls. I would rather wait for a better entry point if I had fresh
cash. An aggressive trader may even wish to either lighten up
positions or even possibly go short in anticipation of lower prices
in the near future.
Remember - this is a trading call only. Know your risk
tolerances and adjust your positions accordingly.
Disclaimer : Cam Hui is a portfolio manager at
Qwest Investment Fund Management Ltd. ("Qwest"). This article is
prepared by Mr. Hui as an outside business activity. As such, Qwest
does not review or approve materials presented herein. The opinions
and any recommendations expressed in this blog are those of the
author and do not reflect the opinions or recommendations of
Qwest.
None of the information or opinions expressed in this blog
constitutes a solicitation for the purchase or sale of any security
or other instrument. Nothing in this article constitutes investment
advice and any recommendations that may be contained herein have
not been based upon a consideration of the investment objectives,
financial situation or particular needs of any specific recipient.
Any purchase or sale activity in any securities or other instrument
should be based upon your own analysis and conclusions. Past
performance is not indicative of future results. Either Qwest or
Mr. Hui may hold or control long or short positions in the
securities or instruments mentioned.
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