In my opinion, investors today may be taking on risk that is disproportionate to potential upside. The great majority of the thousands of charts I review daily are showing over-bought conditions.
No one in their right mind could argue that the stock price of Apple (AAPL) can continue grow at the rate it has this month – from 121.35 (Jan 31 close) to 136.66 (at Friday’s close). For those who care, that is a gain in market cap of $91.4 billion in just 17 trading sessions, which happens to be an additional cap of $5.4 billion a day!
There is an expression in markets that prices walk up the stairs and come down the elevator. Well, too many prices have been running up the stairs! I fear that many people will be losers over the next year and those losses could well be extreme, and happen suddenly. So, remember the word elevator.
Another concern I have is that at times like this, with caution being thrown to the wind, the capital markets abound with criminal activity. Another word, caveat emptor, comes to mind, particularly when it comes to OTC over-the-counter market listed stocks — which btw is often inaccurately called the penny stock market. As Baz22 commented today, the game seems to be about “plunder and deceit” — not always, but usually under the market conditions that exist today.
Regarding the over-the-counter market, I find the OTC Markets website to be an excellent source of information.
http://www.otcmarkets.com/home
For example, here is a sample of the FAQ’s:
What types of companies are traded on the OTCQX, OTCQB and Pink markets?
Companies that trade on our markets span a broad range of sectors, from the ADRs of large cap conglomerates to small and micro-cap growth companies, SEC reporting companies and community banks; and across all major industries, including metal and mining, financial services, oil & gas, utilities, telecommunications, media, pharma & bio tech, and many others. To create clarity in the investment process, we organize these securities into three tiered markets – OTCQX, OTCQB and Pink – based on the quality and quantity of information companies make available. The 10,000 securities on our markets are traded through our SEC-registered Alternative Trading System, OTC Link® ATS.
What is a Verified Company Profile?
The updated information in a Verified Company Profile has been confirmed by a representative of the OTCQX, OTCQB or Pink company within the previous 6 months. A green checkmark on the company’s profile page on otcmarkets.com indicates that the information is current. OTCQX and OTCQB companies are required to maintain a Verified Company Profile.
The OTC Markets Group even marks “certain securities as “Caveat Emptor” and places a skull and crossbones icon next to the stock symbol to inform investors that there may be reason to exercise additional care and perform thorough due diligence before making an investment decision in that security.” Today in fact there are 235 such companies where extra due diligence is required. These can be found by downloading the file “OTC-Markets Company Directory” and sort the column headed “Caveat Emptor,” looking for the securities marked “Y”.
In any case, when considering any security at this point, think about capital market risk. When that elevator starts heading down, it is a fact that most stocks climb aboard – even the stocks of good companies like Apple, Boeing, Cisco – just to start the alphabet… 🙂
Enjoy your weekend, but take care.
/Bill
