The Tough Road of the Trend

 | Jan 10, 2013 | 7:39 AM EST  | Comments
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There are people who are always anticipating trouble, and in this way they manage to enjoy many sorrows that never really happen to them. -- Josh Billings

As I contemplate the market action of the last few years the best single piece of advice I can give to market players is to not be overly anticipatory. The easiest mistake to make has been to constantly look for market tops. If you simply forgot the fortune telling and stuck with the trend you would be far better off.

Stick with the trend until there is reason not to. It is that simple, but every big move we've had in this market has been fought by legions of folks who are convinced that disaster is going to hit at any moment. It is understandable why they feel that way since there are so many negatives out there to worry about. Surely the weak economic recovery, high unemployment, problems in Europe or the political strife in Washington will eventually matter and crush this market. That is especially so as the market so often acts like it doesn't have a worry in the world.

But the reality of the market since the Great Recession low in March 2009 is that once we start to rally we have a tendency to keep running very strongly for a long while. In 2009 we went straight up almost the entire year after hitting a bottom in March. There were no retests and very few pauses. In the second half of 2010 and then in late 2011 and early 2012 we had another straight-up move.

Every one of these moves has been greeted by folks who just can't wait to predict their demise. They come up with endless reasons why they won't last and try to fight them for weeks, if not months, before there finally is a meaningful pullback. The bears have had a miserable time in this market and even the bulls struggle since so many are underinvested during these runs.

The tendency to always fight the prevailing trend isn't that surprising. It is the nature of those on Wall Street to try to stay one step ahead of everyone else.  Calling a market turn is the easiest way to do that. Only the na├»ve and unformed would trust this market for very long. Bullishness is dumb and bearishness is smart. It is just much easier to be profound when you have a negative thesis.

Even if you are willing to ignore the noise and stick with the trend it isn't that easy to do. I constantly have to fight my own inclination to embrace the dark side simply because I'm growing weary of a market that never takes a break. I prefer some ups and downs to trade and I have to watch that I don't project that bias onto the market.

What I find to be the most difficult part of sticking with the trend is that my trading methodology is to harvest at least some partial profits into strength. I take gains not because I'm bearish, but because it is a money management technique that helps to keep my account steadily growing. The problem is that I have to keep finding new buys so that I can have my money at work as the rally continues. I am constantly dealing with being underinvested, even though I have a positive view of the overall market.

I am absolutely convinced that the vast majority of market players would have better results if they stick with the trend and didn't become bearish until there was some real price weakness. Rather than constantly looking for reasons to not like the market they should be focusing on reasons to stick with it.

We have another positive open on the way this morning and you can bet the bears will be growling about how doom is just around the corner. Maybe it is, but until there is actually some hard evidence in the form of weak prices it doesn't pay too much to worry.

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