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Markets closed at new all time highs. What’s next?

It is sort of hard to believe. Bears were convinced of an imminent market crash and with any decline they loaded up their portfolios with more bearish trades.

Yet it was apparent that we are no in a bear market and all reversals showed up to be just bear traps.

The Brexit was a bear trap.

And the recent pre-election decline was just another bear trap in play.

SPY

We broke up also on Trump optimism. Before election, market participants were skeptical on trump and when FBI came out with a new investigation on Clinton, markets crashed. When the investigation was called off, the markets rallied.

We could see the same when Clinton lost Florida. The markets also tanked.

However as soon as Trump won the election the markets reversed and rallied since then. Consumers’ optimism rose in the last few weeks fueling more optimism in the markets. We are entering into a shopping season and it will tell us a lot about consumers’ confidence.

As of now, as Financials, Steel stocks, Semiconductors, Regional Banks, and Transportation stocks all broke up in a very strong rally and based on Trump promises about re-building America, we have no way to go than up. There is no resistance, no game changing event! Only Trump optimism, promises, and great expectations.

 

 · Will the Trump rally continue or will markets crash?

 

But how long will this rally last?

I personally believe that this rally will continue.

There may be a few breaks and minor pullbacks but we are heading higher. Although I do not make predictions and will never do, my expectation of the next level is 2280 level of SPX (S&P 500). It is a next measured stop from Brexit to consolidation. Take the same magnitude and project it from the recent break out.

This bull market is not over yet, it just got started, and it will go higher.

I believe we will see this rally until late January or February as we will see the effect of Trump promises, later Santa Claus rally and then we may see fading as the reality kicks in.

 

Broken Promises

 

I believe that Trump will not be able to deliver on his promises (in fact he is already breaking many of them) and that may come as the awakening point to investors who may realize that they were overly optimistic and the rally will fade.

However, as of now, we do not have any force yet in play which would send this market lower. After all, new highs are historically a bullish event. So expectations are higher.

 

 · What to do next?

 

First of all, stick to your plan.

No matter what type of investor you are you must follow with the plan you laid down for you. If you have no plan, then I urge you to make one.

As a dividend investor, there are no changes to my dividend investing strategy.

I continue to hold my shares and reinvest dividends using DRIP program. As the stocks go higher, I might be buying less shares than before when reinvesting the dividends, but that is OK. I have it on autopilot and it is all fully automated.

I keep depositing my small amount of money every months and once I save enough I buy new shares of dividend stocks I like.

I always remember my dividend strategy and my time horizon. I invest for the next 25 years, so any mini-Trump-rally today which may last a few more months only won’t derail me from the plan.

And if the market fades and crashes? Well even better as I will be buying for cheap. All panic and selloffs are welcome in my dividend investing plan. The lower the stock goes, the more shares my DRIP buys and the more shares I buy with my saved dollars.

So no selling of stocks because of high valuation, stock market crash predictions, or gurus talks. Stick to the plan.

As an option trader my plan is also same and it doesn’t need any changes.

Options give you a great opportunity of being flexible. When the market goes higher I can be selling more puts. When it reverses, I start selling more calls and if needed reversing my puts into calls.

When the market drops enough so the buyers step in and it starts going up again I do the opposite – start selling puts again and eventually reverse my calls into puts.

However, caution is justified in this market. As a trader, trading on margin, I have to be always careful to watch my positions and do not over trade, because any fast and large in magnitude rallies in the wrong direction can destroy your account without any chance of reacting properly.





3 responses to “Markets closed at new all time highs. What’s next?”

  1. Martin says:

    I am also slowly unloading.

  2. Amber tree says:

    Good thoughts…
    My option trading will be a little less the coming weeks. I keep some dry powder…

  3. Amber tree says:

    Good thoughts…

    My option trading will be a little less the coming weeks. I keep some dry powder…

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