A Trying Trend

 | Mar 26, 2012 | 4:24 PM EDT
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Today's action makes you wonder why you ever bother selling anything. We gapped up, flatlined for a few hours, and then closed at the highs. There wasn't a worry in the world, and if there was any selling, there were plenty of buyers willing to snap up the offered shares.

As has been the case lately, breadth was superb, with all major sectors in positive territory, but volume was unimpressive. The conventional wisdom is that markets that move up like this on declining volume shouldn't be trusted, but the conventional wisdom has been just plain wrong about the importance of volume for a long time, and it has been very misleading if you have focused on it to any degree.

There are good reasons to believe that this market might be a bit too frothy. But just like the conventional wisdom about volume, the conventional wisdom about sentiment isn't working very well, either. Trying to guess when the market might be so extended that all the buying power is about used up has been an impossible task. When action is this lopsided for this long, the buying power has to be depleted at some point, but that little bit of logic is killing the bears right now.

What is most challenging about this market is that even if you aren't fighting it, it is still tough to embrace it fully. How can any reasonable person not expect some profit-taking to occur soon? We have been going straight up all year and have not had a single notable pullback. Common sense and any prudent money-management scheme demands that you lock in profits at some point, but buy-and-hold has been the profitable course of action.

The key to making money in this market is to stick with the trend. Until we actually have some weakness, we have no other choice.

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


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