Navigating an Overvalued Market, Part I

Investors were shaken out of their complacency Wednesday. After seven straight weeks of gains, the market finally had a significant selloff. It was the Dow Jones Industrials' second-worst day of the year and the Nasdaq and the S&P 500 both posted their biggest losses since the post-election pullback in November.

The ostensible reason for the decline was minutes from the Federal Reserve's FOMC meeting showing a divergence of opinion on whether extraordinary measures to support the market and economy -- quantitative easing -- should continue. I have been increasingly skeptical of this market since the huge rally in January, when the market posted its best start to a year in over a decade. Over the last few weeks, I have moved all the money I put back into the market after the dip in November back into cash. I have also taken advantage of low volatility to purchase cheap insurance on the rest of my portfolio by buying slightly out-of-the money puts on the S&P 500 as a hedge should the market continue to fall. There are two main reasons for my pessimism about the market's short-term prospects....418 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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