Forget Fortune Telling

 | Jan 18, 2013 | 4:30 PM EST  | Comments
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One lesson this market has taught us quite emphatically the last few years is that you had better not rush to call a top when it is uptrending. Once again, we are seeing a straight-up move that is killing the anticipatory bears who keep trying to call a market top. Not only does this sort of action kill the bears, it frustrates many bulls that are underinvested and don't have pullbacks to buy.

One of the puzzling things about these V-shaped moves is that they don't seem to generate the sort of euphoria like we'd see in the pre-Great Recession days. Perhaps it is because the action is driven more by liquidity and computerized trading than speculative traders.

Regardless of the emotions at work, the important thing is that we stay patient and respect the market's ability to keep running far beyond what many would consider reasonable. Not only do you end up losing money on shorts, you miss the profits generated by riding momentum. If you want to short the market, wait for real weakness to occur before you are aggressive.

You don't have to be totally short at the exact moment the market tops to make money. When there finally is a reversal and a major downtrend, it is going to last longer than a day or even a week. Make money while you can and forget fortune telling. We can always react quickly when conditions change.

This market is becoming a bit extended and frothy, but that isn't a good reason to bet against it going higher. Momentum almost always lasts longer than people think it will.

Don't forget that the market is closed Monday and then we have a slew of earnings report. Historically, it has typically not been a great week for the market, but I'm not going to worry about it until there is a reason to.

Have a good weekend. I'll see you Tuesday.

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