Head for the hills: Get out of these stocks at a run and don’t stop running

Well, last Friday wasn’t so bad, was it? For some reason, the market that fell after blowout Amazon and Apple earnings rallied after a slightly less significant earnings win from Alibaba. It is possible that talk of a trade war has focused investors on China for the time being, but I think the real issue plaguing the market is somewhat deeper and has a lot to do with the confidence of wealth managers, that small sub-class of money managers who manage the money of the ultra-rich, and whose influence has grown greater and greater in proportion to the rest of the market, just as the wealth of their clients has done the same.

Their disproportionate influence is particularly contagious because they know each other, as people at the top level of any profession do. They also talk to each other as openly as they choose about their plans, since, like it or not, wealth managers beyond a certain level are never prosecuted for insider trading. It seems more and more likely that we are seeing the second leg of a massive asset re-allocation by wealth managers based on the Trump tax cut, which is to say, they followed the old market axiom of buying on the rumor and selling off on the news, though in this case it was more that they bought on the probability and are now selling on the actuality. The fact that we can now see that such a move was extremely profitable and extremely shrewd makes this even more likely; they are shrewd people.

But, it doesn’t bode well for the rest of us. The ultra-wealthy and their wealth managers can read an average P/E as well as anyone else, and they know the market is overbought. If they continue, as I believe they have only recently begun, to take their toys and go home, stocks are in trouble. Here are a few that I believe could be hit the worst.

Remember to treat these ideas as just that, ideas, and do your own research before making any investment decision.

Julian Close

Julian Close

Julian Close became a stockbroker in 1995. In his 20 years of market experience, he has seen all market conditions and written about every aspect of investing. Julian has also written extensively on corporate best practices and even written reports for the United Nations. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.

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