Double Top Cometh: Sell Leaders and Buy Laggards

So the rally started on 24 Dec 18. That was the point of maximum pessimism. The MSCI World has rallied 21% in slightly over 3 months!

Many traders who returned from Christmas holidays could not believe their eyes. Many sat out this rally and did nothing, wishing it to come down so that they can buy again.

I believe the rally occurred simply because the sellers were exhausted or finished what they had to sell. January rally was probably a short covering. The smart money began coming in from February onwards. The hedge funds probably piled on the long positions in March onwards. I turned positive from Feb 19 onwards and advised to dollar cost average.

We are now approaching the top for MSCI World, last seen in Sep 18. Will it be the dreaded double top and then decline.

My technical take is this: I can’t even see a small correction at this stage. The weekly chart is still bullish. There is a slightly over 50% chance that the Sep 18 high will be taken out.

At this stage, my advice is this:

1.       Sell away stocks that have the following characteristics:
a.      Dividend yields below 4% and / or
b.      Valuations no longer cheap, e.g. average was 12x now 15x, and / or
c.      Technically overstretched, well over 50 day moving average (3% or more).
2.       Buy into stocks that have the OPPOSING characteristics:
a.      Dividend yields over 4% and / or
b.      Valuations still cheap, e.g. average PE was 12x now 8x, and / or
c.      Technically still below 150 days moving average.
You can now take profit from the leaders and chase some laggards.





https://www.youtube.com/watch?v=X8igURnRZlA

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