This morning the markets are rallying to the upside and I believe the prudent course of action is to take any short term profits that have been made over the past several days...the fundamental backdrop of stocks is still murky and because of the continued issues that have plagued the world economies over the past year (as I've discussed at length here), I would be using this mornings strength to lighten up on an short term investment positions that individuals have taken. Like I mentioned, this is not a "buy and hold" market, but one that needs to be approached on a tactical and opportunistic manner. By taking short term profits and moving the proceeds of such back into cash, investors can sit on the sidelines and wait for another move down in stocks and then begin the process of once again putting that money back to work...in the meantime, continue to hold on to the high yielding dividend stocks and the special situation stocks (merger candidates) that I've written about.
Here is a breakdown of why I think the markets have rallied this morning:
- consumer spending data released this morning showed the biggest increase in several months (this is probably due to the decline in gas prices as well as back to school spending)
- there was a large bank merger in Greece which shows some confidence in the Greek financial system
- based on recently released information, it appears that pension funds have begun to reallocate their portfolio holdings out of bonds and into stocks
So based on the positive action seen over the past two days, it might be a prudent idea to lighten up and take some short term profits...
