Positively Frustrating

 | Mar 13, 2013 | 4:13 PM EDT  | Comments
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Stock quotes in this article:

bx

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lnkd

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gv

I can understand why so many pundits are anxious to call a market top. It's because they are running out of ways to say "slow but positive." The DJIA is up nine straight days and 11 of the last 12. It hasn't added more than 1% over the last four days, but it has been consistently positive.

Ironically, not only is this action frustrating for the bears, many bulls struggle with it as well. There is little to do but ride the momentum, which is a good way to make money, but if you are looking for new buys, it can be quite difficult, especially if you prefer to buy pullbacks and dips.

The dips have been so shallow they hardly can be called dips. This morning was a particularly good illustration of how routine the buying of weakness has become. Many folks, even those who have been quite bullish, like Jim Cramer, thought we were going to see a little weakness finally. We did see some, for about 15 minutes, and then it was basically straight up the rest of the day.

This sort of lopsided action has become the new normal for the market over the last few years. I don't know how many times we've seen this sort of streaky, low-volume action but it is the rule rather than the exception. Every time I start to think it can't happen again, it does.

The only thing you really to know about this market action is that you can't fight the trend because it will last far longer than most people think is reasonable.

Have a good evening. I'll see you tomorrow.


March 13, 2013 | 11:35 AM EDT

A Mixed Blessing for Traders

  • A very consistent trend, but extremely slow action with very little volatility.

The good news is that, once again, early weakness was bought and the market is back at intraday highs.

The bad news is that the indices are basically flat and the action is excruciating slow. Breadth is slightly positive with some leadership in retail, truckers and homebuilders. But there is little volatility overall and that makes for very difficult trading.

The recent market action has been a mixed blessing for traders. On one hand, we have a very consistent trend. If you have stayed with the positive momentum, you likely have had some success.

On the other hand, the action is extremely slow and there is very little volatility. If you prefer to play the ebb and flow of the action, you have not had many opportunities. The way to play this market has been to stay with longs and not do much else.

I continue to hold a number of longs, but I'm doing almost nothing new. I'll take profits when I have them but I I'm just letting stocks like Blackstone (BX), LinkedIn (LNKD) and Goldfield (GV) run.

I don't see any reason to be bearish, but that doesn't mean it is easy to make new buys.


March 13, 2013 | 8:15 AM EDT

Ignore the Top-Callers

  • Stay disciplined and react quickly.

Anticipate the difficult by managing the easy. --Lao Tzu

Since the first of the year, the market has been slowly and steadily ramping up. There was one brief selling squall but it was shrugged off quickly and the uptrend continued. Despite the constant media hype over the new all-time highs in the indices, it has not been particularly exciting action, but there have been good opportunities if you have stayed bullish and not tried to fade the strength.

This sort of action is a particularly good illustration of why I constantly preach that we should be reactive rather than anticipatory in our market approach. The biggest and easiest mistake in this market has been to anticipate tops. Many bears were convinced that the pop on the first trading day of 2013 that resulted when the fiscal cliff issue was resolved would not hold. They anticipated a "sell the news" reaction. Instead, it kept sailing higher. They may have had very good arguments why the market wouldn't run, but it never happened. If they had stuck with their view, not only have they have missed substantial gains but they have racked up big losses as well.

It is far safer and more profitable to embrace the action in front of us and stick with it until there is a good reason not to. Of course, the intellectual bears hate that approach because it is too simplistic and it means sticking with unwashed masses who really don't know anything about the market.

Folks who use an anticipatory approach to the market have little respect for the crowd. They are viewed as mindless sheep who are always wrong. The truth is that the crowd is right the vast majority of the time. If you run with the herd, you will almost always do better than the folks who fight it.

At extremely levels, the crowd will become so euphoric or depressed that there is no firepower left for the trend to continue, but that is rare. If you stay highly reactive you can find good exit points and not be caught in a massive breakdown.

The important thing to remember about a reactive approach to the market is you will likely have a good cushion of profits from riding the momentum, so being caught in a turn won't be that painful. Generally, traders who ride momentum will be much further ahead than those who fight it that they can afford to give up some gains if a sudden turn does occur.

More often than not, tops are a process and take time to develop, so you have time to exit without taking massive losses. The bears always hope that the market will suddenly fall apart but that seldom occurs. It isn't that hard to escape the market when conditions change if you are disciplined and move quickly.

In the current market there is no question that the best approach is to stick with the trend and to be reactive rather than anticipatory. It may not seem as intellectual or clever to ride the trend but it is a far more profitable approach than endlessly predicting that doom is lurking.

We have another very slow and slightly negative open on the way. It is quiet and we need to be selective with buying, but there continues to be no compelling reason to bet against this market.

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