Market Overbought + Trump Stirs Trouble: Brace for a Dip?
Recently, market volatility has been disappearing. The latest data shows that hedge funds and large speculators are betting on calm continuing with unprecedented force—shorting $Cboe Volatility Index(VIX)$ like crazy. The size of VIX shorts has hit its highest level in three years.
But just as “Powell” sent out dovish signals, Trump started “stirring things up.” He openly announced the “unilateral” dismissal of Fed Governor Lisa Cook and confidently stated that he would soon hold a majority on the Fed’s board, allowing him to push for steep rate cuts.
Trump Risk Coming Again? Pullback Will Arrive on Sep.?
Since April, the market has been rallying almost nonstop, with barely any pullbacks in four months. Historically, U.S. equities see 2–3 corrections of more than 12% every year, and at these levels, the risk-reward isn’t particularly attractive. Last week’s small dip gave many traders the chance to bet on a fifth wave, but the real correction may not come until September.
For long-term investors, these short-term swings can be ignored—just add positions when the market dips. Short-term players, however, may want to cash in first, because U.S. markets tend to “fall fast and rise slowly.” When a big drop hits, months of gains can vanish in weeks.
Last week we also talked about when to take profits, and someone brought up the RSI indicator. Do You Have Your Own Take-Profit Strategy or System?
RSI (Relative Strength Index) is a momentum tool used to gauge trend strength and signal reversals.
On a 0–100 scale: 30 = oversold, 70 = overbought. When RSI shows overbought, it suggests momentum may be weakening at the top, often seen by traders as a precursor to a pullback.
However, RSI gives plenty of false signals, so it’s best used alongside MACD or the 50/200-day moving averages.
Recently, two stocks were flagged as overbought:
$Reddit(RDDT)$ : Since its IPO in March last year, the stock has surged 4x, but momentum now looks tapped out.
$Altria(MO)$: A “dividend aristocrat” that gained over 30% in the past year, but its momentum is seen as unsustainable.
Discussion:
With U.S. stocks at record highs, is buying $Berkshire Hathaway(BRK.B)$ a safer choice?
Which stocks would you take profits on right now?
Some said, if you hold the Mag 7, you never need to take profits—just buy more on the dips. Do you think the Mag 7 really are “forever holds”?
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對於長期投資者來說，這些短期波動可以忽略——只要在市場下跌時加倉即可。然而，短線玩家可能想先兌現，因爲美國市場往往“快跌慢漲”。當大幅下跌時，幾個月的漲幅可能會在幾周內消失。
I don’t rely on RSI alone since it throws false signals, but I use it with moving averages to guide trims. If stocks look overbought and extended, I’d rather take some profit than chase. Reddit $Reddit(RDDT)$ and Altria $Altria(MO)$ are examples where momentum feels unsustainable, so tightening risk makes sense.
On longer-term plays, I don’t believe in “forever stocks,” not even the Mag 7. But Berkshire $Berkshire Hathaway(BRK.A)$ feels like a safer hold here, with its diversification and solid balance sheet. My approach is to ride winners but stay disciplined—add on dips, and trim when valuations run too hot.
@Tiger_comments @TigerStars
For taking profits, focus on stocks with extreme momentum—like Reddit (RDDT)—or those trading above fundamentals. Dividend payers like Altria (MO), especially after strong gains, may also be good candidates to rebalance your portfolio.
The “Mag 7” (Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia, Tesla) have been stellar growth stocks but carry tech concentration risks and regulatory exposure. Market leadership evolves, so while buy-and-hold with buying dips often works, regular review of their fundamentals and valuations is essential to stay prudent.
@koolgal @Abaaa @linkoog @Moneybearsss
Some key points to consider:
- *VIX Shorts*: The size of VIX shorts has hit its highest level in three years, indicating a strong bet on low volatility.
- *Market Sentiment*: This trend suggests a high level of confidence among investors, potentially driven by stable economic conditions and low volatility.
- *Potential Risks*: However, this trend also raises concerns about the potential for unexpected market shocks or changes in investor sentiment.
@imah @uswatun1 @WILDHAN @ANGGA @Zara