An Overvalued Market

As Trend Followers, our main focus is always on the direction of the major trend (along with our sell stop points) and not on the fundamentals, although from time to time I have voiced my opinion about the current economic recovery, or the lack thereof.

In a recent interview on CNBC, Meredith Whitney, who does not mince words, commented on the current overvalued stock market and the odds of a double dip recession. Take a look:

I agree that a double dip recession in form of a “W” (or several Ws) is a distinct possibility, especially once the stimulus runs out.

While such a scenario will be a death blow again to those simply holding on to their investments, it will offer us trend followers the opportunity to sidestep the downturns via our sell stops and be onboard when the uptrend resumes.

To be clear, as was the case in 2008, trend tracking will not get us out on top of the market, nor will it get us back in at the exact bottom. Both points (the top and the bottom) need to occur first before they can be identified.

However, avoiding the brunt of the sell off, and participating in a good part of the subsequent up move, will certainly help your portfolio avoid a serious haircut, whereas mindlessly hanging on to your investments, regardless of market direction, will have dire consequences—again.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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