"David, are dividends the latest 'crowded trade', just more evidence of the desperation investors show while chasing 'some' return in an era of artificially suppressed interest rates? It reminds me of the rush to high yield before the GFC (in which I participated, mea culpa) when how the yield was created mattered less than the yield itself. A reminder, I think, to FMs that when looking at the Autonomies (with yield) people should have a very clear idea of the soundness of that company's business model and finances - if the unthinkables occur...the investor needs to have an idea of what to expect. I suspect that's how you approach these stocks and you always coach people to know their risk tolerance and objectives. Now that P/Es on the US yielders are in line with the general market, one leg of the stool is shorter than the others! In case equities in general continue to disappoint."

David Fuller's view Thank you for an interesting email on an extremely important topic.

Any consistently performing market will eventually become a crowded trade. Think of silver in April, gold in August, Goldman Sachs in 2007, or any other market which has gone from outperformer to underperformer.

As investors, the outperformance is what we all want, provided we do not overstay the welcome. The trick is to spot the turn. That is not easy because psychologically one does not want to close a position that is doing well and where other people also passionately believe (hope) that the trend will continue.

With individual stocks it is certainly helpful to have some idea of the company's business model and finances, including earning cash flow and dividend cover. From a practical standpoint, it may be less difficult to approach this on a macro basis. 1) look for a market showing relative strength; 2) look to see if there is an outperforming sector in that market; 3) look for outperforming shares in that sector. Use the same process in terms of underperformance if you are a trader looking for companies to short.

Since successful timing is partly a fashion game, price charts are often our best guide. The better and less risky trends are relative outperformers which remain consistent. Trend consistency is a major subject at The Chart Seminar and you may have seen enough chart reviews to have an idea as to what rhythmic consistency looks like.

Consider McDonalds (monthly, weekly & p&f), which has been reviewed in Fullermoney on a number of occasions. It has shown consistent relative strength since 2Q 2003 and only really lost its uptrend consistency in 2008. The basic hallmark of MCD's consistency is the staircase (step sequence) uptrend, with one step above another, ensuring a progression of higher reaction lows throughout most of this move.

Currently, MCD is overextend relative to its 200-day moving average (MA), so it has done a little too well and is becoming susceptible to mean reversion towards the MA. Tactically, an active investor might lighten at this stage in anticipation of a correction. Alternatively that person might consider a stop order to limit profit erosion. If MCD moves higher over the near term, becoming even more overextended relative to its MA, the risks from trend acceleration would clearly be increasing. Today is not a time to buy MCD, I suggest.

I have also included a point & figure chart. These are very useful in terms of trend following because by using closing prices and no fixed time scale they eliminate 'noise'. However, p&f charts are fiddly to customise. To create the p&f chart above I kept the 1% default setting which is $1 per box (see bottom left of chart) and clicked on 60% resolution in the small space with a chevron to the right of the chart selection heading. For further customisation, should you wish to experiment with p&f, click on the 'Charting' options in the charcoal bar above the name.

As shown in my example, you can see an unbroken progression of higher reaction lows (columns of '0's) until the rally stalled in September 2008. More recently, you see a step sequence uptrend which is somewhat overextended and a move below $90 would represent an inconsistency.