I have to admit that this rally has lasted a very long time -- and without much corrective action, which would have been normal. But, then again, we don't live in normal times.
I will not make a prediction about when this market will be ready to move down or up. That is a "tops or bottoms" game, and it is not my cup of tea. You can be wrong many, many times before you finally get it right. The questions I hear the most address not only the timing of the eventual correction, but also when the market will offer a chance for entry. Nobody raises a flag that tells you to get in or out, but the market will give you the signal!
In the past I've discussed the relationship between stocks and the market by looking at the correlation index (^JCJ), which tells more about the performance of individual stocks vs. the market than any other tool out there. In a low-correlation environment, individual stocks move on their own merit without undue influence. Of course, that tends to exempt commodity stocks, which will move with the underlying spot price: Crude oil was down sharply Friday, oil-related names sank and gold got hammered, along with the old standby gold-bug names.
While many have complained about the lack of an opportunity to get on board, did you know the market went absolutely nowhere this past week? See the chart below. Perhaps this is a function of a low-volatility environment -- the CBOE Volatility Index (VIX) is under 13% -- but some stocks are moving independent of the overall market.
But how have the indices levitated so well and for so long? Doesn't anyone want to sell? Is it that good of an environment for stocks? I'm not going to talk about price-to-earnings ratios, growth rates or even price multiples. My trade focus is on the charts and technicals, while my landscape analysis is on economic data, anecdotal and empirical evidence.
So, as time passes, the markets are frustrating more and more people -- but isn't that what's supposed to happen? As an options trader who follows trends and momentum, I will take my cues from the market -- and right now it's not a horrible message.
The need for instant gratification has never been more apparent, and many will take that to extremes, perhaps putting too much at risk to gain that reward. But is that the right approach toward achieving a goal? Fear and greed are the emotions that trigger buy or sell decisions. When we are caught up in an emotional swirl, it is because we fear the unknown while fully aware of the consequences, should we fail to make the right decision.
I've said it before and I'll say it again: Trading is not a game of perfect. We have to accept that we will occasionally be wrong throughout the journey, all the while believing that we will triumph in the end.