Brace Yourself: This Rally Might Screech to a Halt

by Jeff Reeves | January 7, 2013 11:08 am

On Friday, the S&P 500 closed at its highest level since December 2007. So … are we set for a crash?

Maybe. Here’s what we’re fighting against:

Granted, there are counterarguments to all of these points. Wall Street climbs a “wall of worry” to new highs regularly. And momentum for stocks doesn’t necessarily have to stop — or if it does, that delay might just be short-lived. There’s also the great point made by David Weidner in the Wall Street Journal last week about the “uncertainty con[5],” where investors should see uncertainty as a buying opportunity and not a signal of collapse.

But at the very least, investors should be reading the posts like the ones I’ve linked to. The Q4 earnings we are about to see could be very ugly, and macro concerns remain very troublesome even if the tape continues to move higher.

Maybe uncertainty is a buying opportunity … but the skeptic in me says that buying opportunity came two months ago in mid-November. The S&P has added about 8% since then, and if you’ve missed it, you might not want to jump in this late in the game.

My advice: If you’re a short-term trader, take some partial profits and protect yourself with stops. It could get ugly in the next few months.

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Jeff Reeves[10] is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.”[11] Write him at editor@investorplace.com[12] or follow him on Twitter via @JeffReevesIP[13].

Endnotes:
  1. FactSet reports: http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_1.4.13
  2. remains a stubbornly high 7.8%: http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/04/job-creation-steady-in-december-unemployment-at-7-8/
  3. Bespoke reports: http://www.bespokeinvest.com/thinkbig/2013/1/4/sp-500-of-stocks-above-50-day-moving-averages.html
  4. Steven Place of Investing with Options: http://investingwithoptions.com/blog/2013/01/04/why-we-are-due-for-a-correction/
  5. uncertainty con: http://online.wsj.com/article/SB10001424127887323689604578218102405954688.html
  6. about to his a “pothole,”: http://soberlook.com/2013/01/jpmorgan-us-recovery-about-to-hit.html
  7. shares a great chart from StockTwits: http://howardlindzon.com/dow-50000-if-but/
  8. largest one-week move to the downside: http://macromon.wordpress.com/2013/01/05/vix-has-largest-weekly-down-move-since-inception/
  9. all this macro talk might be overrated: http://pragcap.com/is-the-age-of-macro-ending
  10. Jeff Reeves: http://slant.investorplace.com/author/profile/jeff-reeves/
  11. “The Frugal Investor’s Guide to Finding Great Stocks.”: http://www.amazon.com/dp/B007KB9CSI/ref=rdr_kindle_ext_tmb
  12. editor@investorplace.com: mailto:editor@investorplace.com
  13. @JeffReevesIP: http://twitter.com/JeffReevesIP

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