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Is Now the Time for Profit Taking?

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By all measures, this market has to be viewed as a bit stretched at this particular juncture.

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A very difficult part of trading is how to be on the right side of the trade, but equally difficult is the question of when to exit a trade. Take the current market as a case in point. With an uninterrupted rise, is now the time to sell? There's clearly no reason to short a rising market, but a market that rises as this one has certainly invites some profit taking and I believe one would be wise to do that here and now.

By all measures, this market has to be viewed as a bit stretched at this particular juncture. The Dow Jones Industrial Average (INDEXDJX:.DJI) has risen nine out of 10 days and tacked on 8% in a month. The same is true for small caps. That's a lot for major indexes and it is especially true of the Dow Jones, which represents large multinational corporations whose extraordinary growth years are way past them. In fact, they are hardly growing at all, given Thomas Kee's analysis.

This doesn't mean that you need to short the market. But it is clearly a bit frothy at the moment and the better buying opportunities are below, not above, at this juncture. The weekly ABCD projections on all the major indexes are right at these levels. The move higher has had almost no interruptions this month. Everything I look at and my methodology of taking profits before the turn suggests you take some of your gains now and redeploy them on the first retrace. That's the prudent play. You don't sell everything, but you trim enough to do some buying at lower prices. Think about it this way: What is the probability of the market just continuing higher and never revisiting the current price point? I would think you have to agree it isn't all that high. If true, then book some of the gains and buy the retrace when it comes. That's what I am doing and plan to do.

Twitter: @tatoday
No positions in stocks mentioned.
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