Apple, Tesla and Microsoft shares are all falling, and our chartist thinks investors should think about exit strategies.
Recently, I posted a note on Apple (NASDAQ:AAPL) and my strong suggestion was to take at least some profits on this high-flyer. And on 1 September, I issued a note on Microsoft (NASDAQ:MSFT) and repeated the suggestion. My timings on both appear to be spot on as tech shares suffered huge declines late last week.
Apple is off more than 20% from Thursday’s all-time high and Microsoft is down 13% off Thursday’s record high. For comparison, Tesla (NASDAQ:TSLA) is down a whopping 30% in just two days. This is their horror story:
I liken post-mania plunges with comparison to the famous North Face of the Eiger. That’s steep!
Is anyone surprised? The degree of bullish fervour had turned into a full-blown mania and sent the increasingly unrealistic valuations into the stratosphere. And all this was in the face of a global pandemic that still rages. And there are major riots in the streets of many US cities. Is this a great backdrop to making long-term share investments?
In fact, my stance on Apple and Microsoft is simply following the rule of buying low and selling high – with precision timing. I had excellent evidence-based reasons for my stance – it was no “gut-feel” hunch that they had “gone too high”.
You could have said that any time along the bull curve – and have been right! Staying with an investment as it climbs ever higher is a very tough task. Sometimes, your whole body is telling you to sell – and likely miss out on even larger gains.
Of course, most investors will not be taking profits. They will either decide they are in it “for the long pull” (the “lax” school of investing), or they will simply “see how it goes”. Most investors buy into a story around their holdings and will cling to them for dear life! It takes some work to be a successful investor/trader.
The higher the shares rise, the stronger is their conviction. This enables them to ride out major corrections calmly. Their habit of “buying the dips” is so hard to break. But professionals resist that impulse and tend to take profits on the way up.
Much thought usually goes into selecting an investment/trade, but how much consideration is given to an exit strategy?
My bottom line: with major reversals in US share indexes last week, we have entered a new paradigm. No longer will it be an “everything up” market thanks to the Federal Reserve. No matter what the Fed does (or does not do), all their efforts will be powerless in the face of new bear trends.
The dollar has made a major low and will advance in a multi-week/month rally phase – much to almost everyone’s surprise. And bond yields are likewise poised to advance. It’s a new ball game!
Incidentally, please note that I was extolling the virtues of boring, old and cheap banking shares in my Chart of the Week for 17 August (Barclays is unchanged since August 1). Sometimes, boring is best – and safest.
For more information about Tramline Traders, or to take a three-week free trial, go to www.tramlinetraders.com.
John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.
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