Technical Alerts and Discrepancies: Should Investors Be Prepared for a Correction?

Technical Alerts and Discrepancies: Should Investors Be Prepared for a Correction?

According to a report by de.investing.com, a financial expert warns about possible risks that could arise in the market. He shows that in 2020, shortly after taking profits and reducing risks, markets collapsed due to the pandemic. Even today he sees numerous warning signals that signal an increased risk of a correction. He warns that markets can remain irrational and offers advice on adjusting portfolios. He also discusses the current dominance of the technology sector in the US markets and their valuation multiples compared to earnings. He points out that these extreme valuations pose significant risk to investors.

The technology sector's market capitalization is increasing, even exceeding dot.com era levels. Even though today's technology companies generate enormous sales and profits compared to back then, the risk is that the sustainability of profits and growth rates could be called into question. Markets may be more optimistic than logic would predict. The valuations currently being paid for technology stocks are alarming and hard to justify. Although these stocks could continue to rise in the near term, some indicators suggest caution is warranted.

It is noted that market depth is decreasing despite record highs, which is a warning sign. In addition, the extremely optimistic mood of investors and the risk behavior of stocks are being questioned. The financial expert suggests returning winning positions to the original portfolio weight and selling positions that are not performing. Through weighted stop-loss orders and portfolio allocation relative to risk tolerance, investors can reduce their equity exposure and reduce relative market risk.

The risks highlighted by the financial expert could lead to increased market volatility and a correction. It is important for investors to adjust their portfolios and monitor potential market impacts.