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They got Shorty – do not chase ambulances now

A fortnight ago, we warned our readers about a messy end to January. The main reasons we cited then were the usual end-of-quarter reporting deadline for large US funds, including hedge funds, and exuberant sentiment readings.

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Key takeaways:

  • The timing of the raid against short-sellers was well chosen. Despite some gambling going on, we do not buy into the ‘rerun of 2000’ scenario. Focus on substance instead.
  • Do not chase ambulances here. As for silver, a sound trading strategy is warranted at best.

Many US-based funds end their business year at the end of October, so the end of January is a first reporting deadline for the new year. But what a ride: we certainly did not expect an investor pack to use the occasion to carry out a raid on the big guys. But given the hard reporting date, the timing of the raid was well chosen. Not much of an option to sit it out; the motto was rather ‘run for cover’. Blood on Wall Street. Now the new quarter has started, and it remains to be seen how much more it takes to shake out the exuberance of market participants.

Stay neutral
In the bigger scheme of things, investors are asking: is this a replay of the dot.com bubble? There has been some gambling going on recently, of course. Yet we do not buy into the bubble scenario. Comparing the overall stock market today to the one back in 2000 reveals a completely different picture. The current uptrend is broad-based and healthy – a stark contrast to the situation back then. When it comes to the hotspots, the advice is clear: do not chase ambulances, as the jury is still out on who will have the last word as far as the stocks in the headlines are concerned. Even for silver – the next target, though not an easy market to manipulate – the recommendation from a fundamental point of view is to stay neutral, and technical analysis suggests disciplined trading for those with long positions.

Don’t get distracted
Investors are better off focusing on substance for now. Swiss and German stock indices joined the Japanese and South Korean ones flashing long-term buy signals recently. It is tempting to get distracted by headlines – yet the crucial market action is often happening elsewhere.

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