Market Correction or Trend Continuing?

A friend recently asked this question "Do you think it is a good time to take some profits? I'm thinking about taking some profits before the market heads south because I am feeling a correction coming soon. I'd like to do this before it happens, even though I don't have a big need for the cash at this moment. What do you think?"

Here is my response:

I do my best to keep a strict bottom up approach to investing where I analyze stocks themselves to see if there are bargains to be found. Typically I do not invest in industries I think are about to take off or try to predict the trends of markets. I steer clear of these types of macro predictions/forecasts because I'm no good at them.

Even though I don't know what the market will do, I still like to look at possible reasons for the markets 7 month, non-stop, price appreciation. I think the main 3 reasons for this terrific run have been due to the government stimulus injection, corporate earnings increasing, and individual investor money coming out of bond funds into the equity market. While problems overseas have tried to stumble the rally, this has been to no avail.

What I can also tell you is that I have been selling my positions for about the past month now. Many stocks I own have had prices rise to a level that I deem fair relative to valuation, if not overvalued. Even 4 months ago, many big name Blue Chip stocks had not kept up with the rally in small caps, so there were values to be found. Heck, even 2 months ago you could find some big names, i.e. Lockheed Martin, selling at great prices. I have had a hard time finding names like these selling at fair prices. It takes a lot more digging and research to find great companies at discounted prices then it was last summer.

I expect to sell more stocks while seeing the market continue to trend higher - market trends are very powerful but I don't expect to pick the top so no doubt money will be left on the table.

Potential caveat: I should also mention to you that I am reducing many of my positions, that I feel are at a reasonable price, because I am trying to create a more concentrated portfolio. Currently I have too many stocks and not enough time to track them all. My goal is to hold a portfolio with about 20 names, approx. 5% in each security. This will increase concentration, so only my best picks are in my portfolio and I can more easily track my holdings.