Rev Shark: Keep It Simple
04/07/2010 7:34 AM
"But, logic, like whiskey, loses its beneficial effect when taken in too large quantities."
-- Edward John Moreton
The high-wire act continues, and the question on the minds of market players is, How much longer can this strength last? As I've often written the answer is, Much longer than you think is possible. The market is not a rational beast, and we can't expect it to act in what we believe to be a logical manner.
Once you realize that normal logic doesn't apply to the market, it becomes a little easier to trade. You can develop methods and schemes to keep your capital safe in the event that the market makes an extreme move against you and you can avoid being overly anticipatory when you know that logic just doesn't apply.
Where most traders are most likely to encounter trouble is when they start building up big positions because they start anticipating that the market is going to start acting in a more normal way and then we reverse. When we trended down in 2008 and 2009, the market players who kept assuming that we just couldn't go much lower found themselves way underwater when the selling continued unabated.
Now we are seeing the mirror-image of that meltdown, and we just keep running up and crushing anyone who thinks it can't last much longer. There are all sorts of good technical and fundamental reasons why this market should at least rest a little, but they just don't matter right now. At some point, there will be a catalyst that will trigger some selling pressure. Maybe it will be earnings reports or economic data or something else, but one day we will wake up and there will be a rush for the exits.
The best way to deal with this market is not to spend too much time focusing on how extended the major indices are but to keep looking for opportunities in individual stocks. You will probably want to take profits fairly fast and keep stops tight, just in case the long-awaited reversal finally kicks in, but you can't be too obsessed with anticipating a top.
As this run continues with no consolidation, it becomes increasingly difficult to find new buys, but that is a good thing in some ways as it automatically puts you in a more defensive posture as conditions ripen for a pullback.
So just keep on plugging along and try to knock out some trades here and there while we wait for conditions to shift a bit. We aren't going to have a lot of great opportunities until this market is shaken up a bit and we have more volatility. In the meantime, we just need to be very vigilant and not worry too much about the seemingly irrationality of the market beast.
We are starting the day with a little weakness. Oil is weaker and the dollar is stronger. Asian markets were mostly up, while Europe is seeing some mild losses.
