CAUTION

Investors Beware

The global markets over the course of the last couple of weeks have performed exceptionally well for investors and traders alike with significant gains and new record highs in the majority of the main indices. We have see a rotation from the underperforming into the riskier equity markets as investors look to take advantage of the recent gains. There was a slight shock to the system last week when we saw the Japanese (Nikkei 225), fall over 7% in one single trading session, which caused a slight tremor throughout the global equity markets.

Let me recap on what has happened over the recent months; accommodative central bank policy from the worlds largest banks (BOE, ECB, FED, BOJ) has helped drive equity markets higher. The process is quite simple the governments print more money through a variety of measures, in an effort to stimulate the economy and in turn stock prices follow suit. I however do believe that this aggressive approach will cause significant consequences in the long run as economies become dependant on these capital injections to stay alive. The markets have become obsessed on this phenonium of QE and any sign that the level of QE may be reduced, taper or even halted will undoubtedly cause a significant market sell off and a return to safe haven asset classes.

Investors are by nature greedy individuals to a large extend and everyone wants to be involved in the big swings and earning the big returns. However in a lot of cases this is how most retail investors get very badly burned. We all remember back in 2006/2007, when every dog on the street, every newspaper headline was telling people to invest in stocks, and then what happened?. As investors you have to be aware of what the big money is doing and the way they are thinking, by the time the ordinary individual is buying these markets looking to catch a part of the big move and own the same stock as their next door neighbour who has been making $$$$$$, these guys are selling the market. Unfortunately this is the truth and it is a cut-throat environment and if you leave yourself vulnerable you will be cleaned out and the market won't look back.

On a more positive note, we have seen some exceptional gains in global equity markets and anyone who was fortunate enough to take part in this rally will have a smile on their face, but just don’t become complacent. If you are happy with the gains that you have made to date it may be  time to take some money off the table and wait for the next opportunity to arise. A common mistake made by average investors is that they enter trades with no plan, no exit strategy. They begin to make nice gains and they are happy to sit back and watch the money pile up, and low and behold a significant market turning event happens and all the good gains have been wipped out in the space of a few days.

I have made a list of a few of the things that I will be paying close attention to over the next few days/ weeks that will help me stay ahead of the crowd and not get stung if a market correction takes place;

1. Can we come back and test the previous highs we made in the equity markets over the last few weeks. Most importantly the S&P 500.
2. Keep an eye on the price of safe havens such as gold and government bonds, usually a good indication as to the market sentiment.
3. Keep an eye on all central bank meetings and press conferences, levels of QE will be discussed and these will be significant market events.
4. The longer we stay at these levels and don't continue on the road higher, the more likely we are to have a correction in the market.
5. Have a plan and know what you want from your investment, if you haven’t made a plan make one now don’t let the market come in and eat up all your gains.