The Stock Market overall has recovered from the “covid-19 crash” and is back to record highs. Is the market high sustainable or are we set for another crash? Is this because there is a wall of money that needs to be invested or because investors are expecting a V-shaped economic recovery and quick profits? Forbes looks at this very issue of unsustainable highs. Although most concerns about the prices of stocks have to do with fundamentals such as the likelihood of a decade-long recession, Forbes looks at technical factors in making their point about the sustainability of the market high. They suggest the use of stochastics in trading today. The bottom line of their discussion is to be wary in today’s market.

Risk Management in a Risky Stock Market

Market Watch agrees with the opinion that there is lots of risk in today’s market. Specifically, they have suggestions to help traders handle election and virus fears.
Proper risk management has the following elements that need to be orchestrated correctly:

• Holding a large amount of cash.
• Putting on hedges or more cash for those who do not want or can’t hedge.
• Putting on protection band(s).
• Owning good long-term positions based on fundamentals.
• Owning short to medium-term tactical positions.
• Following proper diversification based on sectors, strategies, time frames, correlations and geography.
• Holding short positions for those who are sophisticated and experienced or in the alternate inverse ETFs.
• Employing judicious use of stop losses or changes in allocations.
• Learning how to differentiate between strategic and tactical actions.
• Booking some profits as signals are given.
• Following reliable sources of technical, fundamental and macro analysis.
• Staying nimble.

These folks are more focused on how a Biden presidency would affect taxes, especially taxes on short term capital gains for stock traders. And, they seem to be putting the likely long term effects of the virus on the back burner as an issue that could affect investing sentiment rather than an issue that could tank the US economy for more than a decade to come. But, in either case, they agree that the current market highs may not be sustainable and that traders will be wise to manage their affairs accordingly.

Where Is the Money Coming from and Where Will It Go?

In a recent interview the head of the San Francisco Federal Reserve Bank said that the stimulus actions of the Fed were done to support credit markets and were not having an effect on the Stock Market. Nevertheless, there seems to be a lot of money floating around that wants to find a home rather than being held as cash. Over the long term the stock market has always been the best place to invest. However, getting in at market highs means you will commonly suffer losses that will take years to recover. Traders as well as investors will be wise to hedge their bets, sit on cash (like Warren Buffett is doing) and wait a bit until the future looks a bit clearer.