Market Overbought + Trump Stirs Trouble: Brace for a Dip?

Recently, market volatility has been disappearing. The latest data shows that hedge funds and large speculators are betting on calm continuing with unprecedented force—shorting $Cboe Volatility Index(VIX)$ like crazy. The size of VIX shorts has hit its highest level in three years.

But just as “Powell” sent out dovish signals, Trump started “stirring things up.” He openly announced the “unilateral” dismissal of Fed Governor Lisa Cook and confidently stated that he would soon hold a majority on the Fed’s board, allowing him to push for steep rate cuts.

Trump Risk Coming Again? Pullback Will Arrive on Sep.?

Since April, the market has been rallying almost nonstop, with barely any pullbacks in four months. Historically, U.S. equities see 2–3 corrections of more than 12% every year, and at these levels, the risk-reward isn’t particularly attractive. Last week’s small dip gave many traders the chance to bet on a fifth wave, but the real correction may not come until September.

For long-term investors, these short-term swings can be ignored—just add positions when the market dips. Short-term players, however, may want to cash in first, because U.S. markets tend to “fall fast and rise slowly.” When a big drop hits, months of gains can vanish in weeks.

Last week we also talked about when to take profits, and someone brought up the RSI indicator. Do You Have Your Own Take-Profit Strategy or System?

RSI (Relative Strength Index) is a momentum tool used to gauge trend strength and signal reversals.

On a 0–100 scale: 30 = oversold, 70 = overbought. When RSI shows overbought, it suggests momentum may be weakening at the top, often seen by traders as a precursor to a pullback.

However, RSI gives plenty of false signals, so it’s best used alongside MACD or the 50/200-day moving averages.

Recently, two stocks were flagged as overbought:

• $Reddit(RDDT)$ : Since its IPO in March last year, the stock has surged 4x, but momentum now looks tapped out.

• $Altria(MO)$: A “dividend aristocrat” that gained over 30% in the past year, but its momentum is seen as unsustainable.

Discussion:

1. With U.S. stocks at record highs, is buying $Berkshire Hathaway(BRK.B)$ a safer choice?

2. Which stocks would you take profits on right now?

3. Some said, if you hold the Mag 7, you never need to take profits—just buy more on the dips. Do you think the Mag 7 really are “forever holds”?

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