Don't Overthink This Market

 | Mar 28, 2012 | 9:00 AM EDT
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Change alone is unchanging. -- Heraclitus

Heraclitus obviously never traded this market.

The most notable characteristic of the action during 2012 is its consistency and lack of volatility. Nothing much changes day after day. We have had two brief hiccups that lasted two days, but they were quickly shrugged off and we were right back on track and resumed the steady trend higher. The big jump Monday added a slight variation to the action as the mood was a bit frothy. But even on the upside the movement has been remarkably consistent.

This action is driving many market players nuts. They long for the old days when emotions would swing around and prices didn't just move in a straight line. Trading is supposed to be about anticipating the twists and turns in the market, but that has turned into a handicap.

One of the major consequences of this market behavior is that it results in a steady supply of prognosticators who are trying to predict when it might finally shift. They have been promising us a change in the market action for months now and have been dead wrong. If you have been anticipating a market breakdown you have been paying a heavy price.

My message has been to not overthink this action, but to stay with the trend as best you can and focus on picking good stocks. It is frustrating that we never seem to have any real volatility to shake things up and reset the charts, but there is no question that trend following is the best approach to this market.

Another irony of this market is that the consistency of this trend is driving even the trend followers a little crazy. Usually within a trend there are opportunities to buy the dips and sell the rips, but in this slow, extremely consistent trend, selling anything usually leaves you with excess cash since the dips are so limited and there are few good entry points unless you are chasing.

Nothing much is changing this morning. We had a weak close yesterday and there is some slight negative action overseas, but once again it is very quiet and unchanging.


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