More of the Same

 | Feb 08, 2012 | 10:45 AM EST  | Comments
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EPAM

So far, this morning is a continuation of Tuesday's one-way action. We paused briefly and now are stair-stepping straight up again. Breadth is solid at better than 2-to-1 positive with banks, chips, steel and coal leading while biotechnology takes a breather.

As I discussed in my opening post, this is classic computerized trading. The high-frequency trading algorithms keep pushing the market in a straight line as they fire off millions of trades for fractional gains. As long as we keep trending, they can continue to buy and sell in miniscule increments and extract steady gains.

Several readers have asked how to deal with this sort of action. The answer is to acknowledge it and don't try to fight it. The reason that this works so well for the computers is because there are still so many traders who try to fight it. They feed the action and accentuate the moves being created.

I have to remind myself constantly not to let my desire for pullbacks cloud my view of what is actually happening. We'll see a sharp pullback at some point, likely when the algorithms reverse, but the timing is the challenge. I'd love to load some index shorts, but until we actually have some weakness, I'm not going to try.

I have a few minor trades going, but yesterday I went very heavily to cash and locked in gains. There are a few things on my radar, such as EPAM Systems (EPAM), which is a new offering that began trading today, but mostly I'm biding my time.

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