It Doesn't Pay to Fight Mr. Market

 | Jan 19, 2012 | 8:20 AM EST
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The force of the blow depends on the resistance. It is sometimes better not to struggle against temptation. Either fly or yield at once.
-- Francis Herbert Bradley

The easiest mistake to make in this market is to fight the indices when they are uptrending. Ironically the more technically and fundamentally suspect a rally appears to be, the more painful it has been to try to resist the positive action. The hallmark of this market is that when it is overbought on light volume, it stays surprisingly strong -- a laundry list of negative fundamentals is of little consequence.

We are back in that situation right now. We have gone straight up in the first 11 days of trading in 2012, and while there may be some good arguments on why it can't continue, it hasn't paid to try to fight it.

The action yesterday was a good example of how dangerous it can be to be too aggressive in looking for a pullback. We were a bit extended and had closed weak on Tuesday. A soft open on Wednesday looked like it might invite some further selling, but the dip-buyers jumped in and didn't give up. We trended higher all day and ground down the skeptics who were looking for a turn.

Solid earnings reports from the likes of F5 (FFIV), Xilinx (XLNX), eBay (EBAY), Bank of America (BAC) and Morgan Stanley (MS) keeping things running this morning, and market players are eagerly anticipating reports tonight from Intel (INTC), IBM (IBM), Microsoft (MSFT) and Google (GOOG). Earnings season is looking pretty good so far, but we have already had more warnings than in many years, and according to, we have had the fewest positive surprises to this point since January 2001.

Another consideration that will be on the minds of market players today is the fact that Intel's earnings have often marked a turning point in the market. It was the INTC report in the summer of 2009 that helped to trigger a huge move, but other times a good report from the chip giant has marked a top.

Expectations are increasing with this recent strength in the indices, so there is greater danger of a "sell the news" reaction to tonight's report. On the other hand the underlying support suggests that many players are very anxious to buy weakness, and any bad news simply may allow the dip-buyers to stay aggressive.

Don't try to call market tops; stick with stocks as long as you possibly can. The trends tend to persist longer than many think is reasonable, and if you try to short the move, you end up being squeezed.

I tend to take profits into strength and have had a hard time putting cash to work as technical entry points become stretched. It has generally been better to give long positions some room and to hold on until there is some significant weakness, but it still can be extremely hard to be aggressive at putting cash to work.

I'm looking for the market to hold up fairly well today as market players anticipate the big earrings reports tonight. We'll see how sentiment develops after the news is out, but at the moment we are running over the bears -- and I'm not going to fight it. I'll continue the hunt for buys but I don't expect it to be easy.

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