Rev Shark: Stick With the Trend
12/20/2010 9:06 AM
If I had my life to live over, I would perhaps have more actual troubles but I'd have fewer imaginary ones.
-- Don Herold
We will see the standard Monday morning gap up greeting us as we count down to the end of the year. There are only nine more trading days left in 2010. Don't forget that the market is not closed this year at all for New Year's Day. We only have one official holiday this season: Dec. 24. Nonetheless, volume will slow dramatically later this week and be extremely light next week.
The good news is that there tends to be positive seasonality through the end of the year. Market players are in a good mood and many will put off taking gains until the new year begins. However, we usually see some selling squalls as some folks will want to recognize losses this year and make portfolio moves. It is quite easy to be caught in some quick dips as the year winds down, but they usually don't last long.
The market has been tremendously frustrating for the bears lately as it continues to drift up slowly -- but with some bothersome underlying action. Breadth has been quite mediocre lately and there have been some breakdowns in key stocks. The bears keep pointing out the many negatives out there, but this market just isn't paying much attention at all. There doesn't seem to be much worry, which may be a contrary indicator to the bears but so far it hasn't mattered at all.
Last week, it really looked like we were ready for some consolidation as key leadership stocks struggled quite a bit. The indices never quite succumbed but market players started to lean a bit more bearish on Wednesday and then were squeezed on Thursday and Friday. A lot of folks were trying to call a top, and that is probably one of the main reasons the market is holding up so well.
My approach this market is to not be sucked into the top-calling game. I want to stick with the long side until there is some price action that is clearly negative. It just hasn't paid to keep anticipating a market top. It isn't difficult to understand why the bears keep thinking the market is going to roll over. There are plenty of good and logical pessimistic arguments, but it just isn't happening and it may not happen in the near term.
When I reflect back on the action since the low in March 2009, the single most costly action for most market players, including me, has been an inclination to not believe that an uptrend could last. After all, how could this market go practically straight up for so long when the economic situation is so challenging? Unemployment is high, real estate stinks and there is hardly any growth, but many companies have had great earnings and the stock market acts like we are in a booming economy.
It is nearly impossible to reconcile the differences between Main Street and Wall Street. The best approach is to not even try, but to simply stick with the trend as long as you can. When stocks start acting poorly, then we need to act quickly. But anticipation of future problems is not a strategy that has worked for a very long time.
The market has a good gap up open to the start the day. As I mentioned on Friday, I was looking at the gold sector a bounce and that group is looking OK. We'll see how well the bulls can hold up this market after the open, but at the moment, it looks like there is little fear or worry.
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