If you keep on saying things are going to be bad, you have a good chance of becoming a prophet. -- Isaac Bashevis Singer
The easiest thing to do in a market that has been rallying like this one is to look for reasons why it won't continue. Of course, the trend will eventually come to an end and we'll have some poor action. That is the nature of markets and it is inevitable that the cycle will turn.
Unfortunately, many market players focus so much on predicting when things are going to go bad that they fail to profit while times are good. If you keep predicting bad news, you will eventually be correct, but you will probably end up costing yourself money because you miss out on all the positives while you wait to be proven correct.
Over the years I've noticed that one thing Jim Cramer does extremely well is that he stays with a market that is rallying. He will focus on reasons to continue to like the market while many others are focused on reasons why it can't continue.
If your mindset is to keep looking for positive action it is surprising how often you can find it, even when negatives are starting to appear. This past week for example, the indices didn't make much progress, but if you stayed positive and focused on individual stocks there was some very strong action. If you wanted to find things to worry about it wasn't very hard to do, but it didn't make you any money. It was far better to maintain a positive attitude and focus on what was working rather than what wasn't.
Ever since the market low in March of 2009 there seems to be this overwhelming belief among many individual investors that another disaster is going to occur. It has held so many people back and has been one of the reasons we have had such huge equity outflows for so long. How can we possibly expect the market to rally endlessly when the economic recovery is so poor, unemployment still so high and so few people optimistic about the future?
Reconciling the way the market has acted with the generally pessimistic view of the economy has been one of the most difficult things for me to do over the past few years. I have to consciously remind myself to not focus on all the big-picture worries. This market has ignored them so completely, and so often, that you have missed out totally if you have embraced the bears' case.
I don't want to be a Pollyanna, but it has been a far better approach to the market than anything else for a very long time. If you are going to bet against this market, we need hard proof in the form of poor price action. We have had a few weak days lately, but we keep shrugging them off and regaining our focus. If we have a few more of these downtrend days and weak closes it will eventually take a toll, but so far the bulls are fighting back very nicely and not letting things come in for long.
It is important to keep in mind that this market has been strong enough recently to afford some weak action. You can be sure the bears will be jumping up and down with excitement if you pull back a few percent, but it won't be enough to really kill this uptrend. In fact, it may just be the rest and reset that is needed to support further positive movement.
We have a very quiet start this morning. Earnings season is just about over and the focus is going to shift to political battles again, which has the bears feeling good, but stay focused on that price action and let that be your guide.