Picking a market top part 4 found here.
Towards the end of last year, I wrote a series of articles about how I intend to exit from the market. After a intermediate peak in Oct 2009, I said the one thing on my mind is whether the market will run up towards the end of the year and whether it will form an identifiable peak to make my work of exiting my investments easier. If I can't identify such a peak, I would exit in batches. After inching up for 2 whole months, the market is starting to get somewhat euphoric as we see 2nd liners and small caps starting to move up with much momentum compared blue chips.
Looking back in time, the current period resembles that of 2003-2004 in terms of market psychology. While the 2003 rally is somewhat smaller in terms of size, it was driven also driven by liquidity generated by a series of rapid interest rate cuts. Similar to 2009, very few people got onboard the 2003 rally and throughout the rally there was doubt about the economy, grouses about a 'jobless recovery' and talk of a double dip recession and so on. Towards the end of 2003 and beginning of 2004, investors began to get optimistic, doubts about the economy faded and investors began to pile in with increased optimism. The market peaked in Jan 2004 and spent the rest of the year going nowhere.
Are we going to see a fast final runup to the peak? The activity in lower liners and fall in VIX (volatility index aka fear index) tells us there is a high level of complacency. The rising US dollar carry trade will mean increased vulnerability on the downside as investors get euphoric. The global economy can be beset by problems that were delayed by the record stimulus and flood of liquidity. My take is we will see rising momentum that will take us to an identifiable peak and that is it...that will also be a good time for me to exit fully. I'll update on this as market developments unfold.