We would have to call last Friday a “Blow Off” as the market rallied on no news and little fundamental support.
It would appear to us that we are starting to see panic buying as the yield investors jump out of cash and head to the blue chips mainly the banks.
If we take a closer look at the market ex the banks we note that the broader market has, in fact, be trending down. It has been the financial sector, which has done all the heavy lifting to keep our market going higher.
The question is how long before they break and the market has a correction.
The implied volatility indicators are showing us that the market has been running on rumour, not fundamentals and is now looking expensive.
As a result, two courses of action can take place.
The market holds around these levels and waits for the fundamentals to catch or it drops back to its correct level.
I am a value investor; my concerns are about the individual companies. So I am okay with either of the above actions.
At these levels, it makes sense to take profits and re-weight your portfolio to ensure that you maintain your risk and exposure.
Then continue to look for opportunities to buy out of favour companies such as Cardno.