Navigating the Overbought Market: Trimming Stocks and Buying Opportunities

As the market continues its upward trajectory, investors must remain vigilant and adapt their strategies to capitalize on opportunities. This week, we found ourselves in an overbought market, presenting both challenges and opportunities. In this article, we'll discuss how we trimmed three stocks, bought more of another, and navigated the overbought market to maintain a balanced portfolio.



Trimming Stocks in an Overbought Market

In an overbought market, it's essential to reassess your portfolio and consider trimming positions that have appreciated significantly. This week, we decided to trim three stocks: Boeing (BA), Salesforce (CRM), and Cisco Systems (CSCO). The decision to sell these stocks was influenced by several factors:

1. Boeing (BA): Despite encouraging news and new orders, Boeing's track record and numerous overhangs, such as the crash investigation and potential 737 Max return to service in China, weighed on short-term sentiment. We sold 25 shares at around $195.75 each, realizing a gain of about 15% on stock purchased in October 2020.
2. Salesforce (CRM): Although we like Salesforce for the long term, its high price-to-earnings multiple made it vulnerable to a significant decline in an overbought selloff. We sold 50 shares at around $214.50 each, realizing a gain of about 47% on stock purchased in October 2018, and downgraded our rating to a 2.
3. Cisco Systems (CSCO): We considered Cisco's stock overbought and preferred being a buyer again under $54. We sold 200 shares at around $56.12 each, realizing a gain of about 6% on stock purchased in June 2021, and downgraded our rating to a 2.

By trimming these positions, we increased our cash flexibility following a roughly 10% move higher in the S&P 500 over the course of about two weeks.

Buying Opportunities in an Overbought Market

While trimming stocks in an overbought market, we also identified an opportunity to buy more of Microsoft (MSFT). The S&P Oscillator indicated that the market was in overbought territory, suggesting that a short-term rest or correction could be due. This overbought condition led us to increase our cash position by selling some of our holdings, including Microsoft, to be ready to buy more of our favorite stocks if the market came in.

We sold 25 shares of Microsoft at roughly $314.95 each, realizing a gain of about 287% on stock purchased in December 2017. Despite the sale, Microsoft remained an attractive investment opportunity due to its fundamental aspects, such as its strong balance sheet, growth prospects, and brand-name status.



Adapting Our Investment Strategy

In an overbought market, it's crucial to adapt your investment strategy to capitalize on opportunities. We implemented a short-term, tactical approach by selling shares of Boeing, Salesforce, and Cisco Systems at prices ranging from $195.75 to $324.02. This move allowed us to lock in profits and reduce our exposure to overvalued stocks.

By trimming our positions in these six stocks, we maintained a balanced portfolio and prepared for potential buying opportunities in the future. Our actions were guided by the S&P Oscillator, which helped us identify the optimal time to sell a portion of our holdings and raise cash, allowing us to be ready to buy more of our favorite stocks if the market came in.

In conclusion, navigating an overbought market requires a balanced approach that combines trimming overvalued stocks and identifying buying opportunities. By adapting our investment strategy and utilizing tools like the S&P Oscillator, we were able to maintain a balanced portfolio and capitalize on market fluctuations. As always, it's essential to stay informed, remain patient, and make well-researched decisions to achieve long-term success in the stock market.