Perfect Opportunity for Investors to Liquidate Some Positions?

What the heck is with this stock market? The ability of the stock market to hold and avert a major correction over the past two weeks and then follow this with an upward move on the charts is a surprise—at least in my view it is, as it clearly shows the bullish bias controlling this stock market.

The NASDAQ and Russell 2000 are at new recent highs as the desire for growth by investors continues, which has largely been the story this year.

The S&P 500 is within striking range of its September record high.

The focus on the debt ceiling is important but also way overdone, in my opinion, given that we are in the midst of the third-quarter earnings season and, well, it has been subpar early on.

Yes, it’s still early in the earnings season, but I expect more subpar results. Of course, what I expect doesn’t matter—momentum and speculation are what drive this stock market.

So far, about six percent of S&P 500 companies have reported, and a dismal 55% of these companies have beaten estimates. That’s just not good. The results are also well below the historical average at just over 60%, and to make matters worse, the results were compared to estimates that were already lowered by Wall Street. Revenue growth is also lackluster, as I expected, which is not what we should be seeing with an upward-trending stock market.

The big banks reported decent results, but much of the easy money in this stock market sector has been made. The retail sector, which I view as critical due to its impact on gross domestic product (GDP) growth, has been lackluster. And with Black Friday and the key holiday shopping season fast approaching, things aren’t looking good for the retail sector; if consumer spending continues to fizzle, then it’s likely we’ll see another downward drive in fourth-quarter GDP.

In my view, I would be taking some profits or cutting losses. Recall what I said in my previous article regarding greed, risk management, and the need to have an investment strategy in place. (Read “Four Strategies to Protect Your Profits in a Falling Stock Market.”)

And don’t forget that there are still growth issues in Europe and China that will continue to have an impact on the U.S. economy. Europe is showing some signs of pulling out of its recession, but it’s going to take some time, especially as the jobs market there continues to be dismal.

My feeling is we are likely seeing the top to the stock market for this year (we may see a move of just a few percentage points higher in the best-case scenario), so I’d look at taking some money off the table.