Home > Blog > Trader talk > Time to take profits short term?

Many investors (rightly so) ask for an indication when the markets are in overbought territory. ‘If I knew back then what I know now I would have definitely sold.’ Says the wise old man….

So here it is – we aren’t cheap anymore so it’s time to cash in on some profits.

Interesting points to note:

  • The probability of a correction is much greater than an upside in prices at this point in time.
  • There is a high probability that quantitative easing will happen in Europe. Markets are pricing this in. However, when Draghi will announce it we will see markets at a higher level.
  • The Russia-Ukraine situation has limited impact on the markets. Infact if you look at the situation since it started to date, you will see that it hasn’t lead to significant corrections in the markets. And we are already seeing Putin turn to countries like China to make up for sanctions placed by the EU and USA.
  • EURUSD is expected to continue weakening. We could easily see a 5% further reduction in the EURUSD next year. This would take the EURUSD to $1.18 benefitting European exporters.
  • Although we expect to see QE in Europe, we don’t expect to continue to see the same gap between growth in Germany and peripheral Europe. We expect the gap to tighten.

Food for thought

  • Market anomalies – normally as we close of the year and start a new one equity markets go up.
  • We already had two corrections very close to easy other which isn’t ‘normal’ – doesn’t another correction in such a short period of time make sense?

The truth is, if you start to think of how people will behave in different situations you are bound to get it wrong. We are portfolio managers and we manage situations. The situation right now is that the markets are expensive in the short term, however, we see them at a higher level 6-12 months from now. For those investors with a buy and hold strategy, I see no harm in staying the course. However, for those investors who want to try and earn additional returns (over and above that of the market), sell indications shouldn’t be put under the table.

Conclusion

Take profits short term. Be ready to start drip feeding back into the market once we see weakness. We are not saying sell and stay out. We are adapting to change of a market with increased volatility. European markets are lower YTD. Having bought the dip and sold the rally, portfolios would be outperforming the market at year end. If you don’t learn from your past mistakes you will keep on doing the same mistake time and time again and it will be reflected in the valuation of the portfolio at year end.

Good day and happy trading!

Kristian Camenzuli