Rev Shark: Stay Focused
12/21/2010 9:03 AM
If you don't like something change it; if you can't change it, change the way you think about it.
-- Mary Engelbreit
The S&P500 has been up for 12 of the last 14 days and is set for another positive open this morning. Overseas markets were quite strong overnight as China was less aggressive in making some inflation fighting moves than expected and tensions eased between North and South Korea. A strong earnings report from Adobe Systems (ADBE - commentary - Trade Now) is adding to the positive mood.
It is rather fitting that the year is ending with the sort of market action that has been so common since the low in March 2009. We have seen a series of these rallies in which the market goes straight up with long streaks of multiple positive days. We saw a stretch from February through April and then from September through November. In both cases, the market had strong runs with no pullbacks. In March, it had one run in which the S&P500 was up 14 days in a row.
If you look back at the market action over the last 10 years or so, you will see plenty of uptrends but very few stretches in which the market went up in such unrelenting fashion. Even the strongest runs would have some pullbacks and rest before the market would resume rallying.
These straight up moves are what can make the market so difficult even for those folks who are steadfast in their bullishness. You are constantly required to try jump on a moving train if you want in. Of course a buy and hold approach, especially if you are in the right stocks, is the big winner in this sort of market which is ironic after so many people declared the approach to be complete dead after the meltdown of 2008.
Too many market players insist on fighting this sort of market action. Rather than adjust their thinking and their approach, they keep acting as if the market will change what it is doing simply because they want it too. You aren't going to win any battles with the market beast. The only thing you can do is change your thinking if you are not having much success.
Lately I've been repeating the same piece of advice quite often but it is what is working: Avoid the temptation to keep trying to call a top and stick with the trend until there is some actual price weakness. The bears have been trying to anticipate a top for weeks now and they keep on being badly abused by the market beast. Yes, there are plenty of reasons why this market should correct and the fact that it is more and more extended each day just adds to the logic of the anticipatory bears, but it isn't happening.
Not only are the bears racking up losses on their short positions but they are missing out on the positive opportunities that continue to occur. That is the biggest danger of a trend fighting approach. If your timing is off, you will not only have losses on your short positions but you will also miss out on gains from long positions.
Timing is always the key to market success and there is just no easy way to time when a trend will come to an end. That has proved especially true in the market during the last two years in which we have such stubborn and steady uptrends. So forget the timing and stay focused on the price action. The price action will take you out of the market at some point when the market finally does correct but in the meantime, just keep trying to pad your gains, so you have a big cushion when the trend finally does shift.
We are seeing a good size gap this morning, which should invite some quick profit-taking. But, as we saw yesterday, the dip buyers were lurking about and were pleased to buy the weakness. With the dollar weak this morning, the dip buyers should be anxious to jump in once again. That is, if they even have an opportunity.
The trend remains our friend.
At the time of publication, Rev Shark had no positions in stocks mentione