Now is the time for caution. Now is not the time to get out of the market and buy cash or gold but it is time to look at each individual stock in your portfolio and lock in your mental sell points. I'm not going to say that the market is overvalued but I will say it's FULLY VALUED. I think unless there is upward changes in Revenue and Earnings projections there is little upside potential from here. Here are my thoughts:
- The economy is still getting stronger, According to the Conference Board's latest Report on Leading Economic Indicators both the Leading and Coincident Indicators are still on the uprise. Please read the summary from the attached link.
- My proxy for the stock market is the Value Line Arithmetic Index because it is an index of the 1700 largest companies and is not weighted on capitalization so that the largest stocks skew the index. It is still on the rise but is close to topping. (Chart below)
- The composite P/E ratio of those 1700 stocks is 19.4 which is very near the high of their historical range. If the market gets over a 20 P/E I will be trimming my portfolio and leaving the proceeds in cash - but not just yet.
Please look at your portfolio and look for stocks you feel have just run out of steam. How many new highs are they hitting each month? Are any trading 10% below their previous high water mark? If they are not adding value to your portfolio why are they still in it?
If you sell something and want to replace it with something you think is better do that but only if you have the cash. Now is not the time to buy on margin - the risk is just too great.
Be careful out there. If you've been sitting out there is cash, I'm sorry for you but now is not the time to dive back into the market. Be very cautious about adding new positions.