Stop Top-Watching

 | Feb 08, 2013 | 8:30 AM EST  | Comments
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Part of the happiness of life consists not in fighting battles, but in avoiding them. --Norman Vincent Peale

The bears continue to battle this market but they have one big problem: Too many individual stocks are very strong. Even with the market sputtering, a steady supply of stocks hit new highs every day. There seems to be a supply of names like Netflix (NFLX), LinkedIn (LNKD) and Google (GOOG) that are cruising along without a worry in the world.

The bears keep telling us about all the fundamental negatives, and even have weaker action in the indices to help them out, but this market won't crack. Yesterday, for example, the bears had a good opportunity to press, but after a steep selloff in the early going, the market bounced back nicely and was almost even by the close.

I often write that strong markets tend to be sticky to the upside, which is why I stress looking for a topping process rather than declaring a turning point. The bears cause themselves so much difficulty with this compulsion to anticipate the exact moment the market hits a high. You don't have to do that to make money. Let me repeat that because it is so important: You don't have to predict the exact moment the market hits a top to be a successful trader.

In fact, you will probably have greater success if you simply forget the market timing and stick with finding stocks that are acting strongly. So much energy is wasted trying to anticipate a top that it is very easy to lose sight of hundreds of stocks hitting new highs.

You can construct all sorts of great arguments why the market can't continue trending higher. You might even be invited to appear on TV to share your great wisdom if you are sensationalistic enough. Unfortunately, it isn't making anyone any money!

The way you make money is to trade good stocks and catch momentum while it is there. When we stop finding good stocks to buy and trade, then we can turn bearish. You don't need to worry about European bailouts, the PE of the S&P 500 or spreads on Treasury bonds. Those things will be used as justification for a market move at some point, but they are irrelevant now.

I don't want to make it sound like it's easy to load up and stay long, but it certainly is helpful if you don't keep fighting the trend. Quite a bit of churning is going on and I'm hearing complaints from traders who haven't made much progress lately, but they are doing better than those with a bearish bias. It is tough going and we have to keep grinding it out. The key is to respect the price action and not fight it until it shifts.

We have another flat open setting up and it will be interesting to see if Apple (AAPL), LNKD and GOOG can keep pushing. Watch that list of new highs and if it starts to fall, that is a good indication conditions are shifting.

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