Rev's Forum: Don't Let Bearish Market Theory Get in the Way of Making Money

 | Sep 12, 2017 | 7:17 AM EDT
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"Life is not always a matter of holding good cards, but sometimes, playing a poor hand well."

--Jack London

Many market players hold the mistaken belief that the best way to navigate the market is to formulate a thesis and then wait for the market to appreciate your great wisdom. That has worked pretty well for bulls who have maintained a bullish bias, but it has been a disaster for bears who keep trying to predict market tops.

The biggest problem for the pessimists is that the market isn't reacting to news in the manner that they view as reasonable. It has ignored nuclear bombs in North Korea, two major hurricanes and a steady supply of political problems in Washington, D.C.

One of the bears' biggest arguments has been more hawkish central bankers, but they refuse to cooperate as well. Interest rates have fallen to the lowest level of the year and the odds of future rate hikes has decreased. It is still believed that the Fed will start to normalize its balance sheet soon, but it will be done at a glacier pace to avoid upsetting the market.

It isn't just the market's indifference to the negatives that have confounded the bears. The main thing driving the market is a positive feedback loop in the price action that keeps the buyers coming. Every dip is bought, and when it isn't bought the strength is chased. We had a good example of that yesterday when the buyers where champing at the bit to jump in.

To navigate this market, you need to play the cards that are dealt. The main card right now is the positive price action and the tendency to discount any negative news. I keep writing this, but it is the most important thing you can do: stay reactive rather than anticipatory.

Many market players took a cautious stance on Friday and found themselves poorly positioned for the big move on Monday. When you have a poor hand when the market gaps and runs, you don't double down on your mistake. You look for ways to reposition and play the cards that are dealt.

The market is set to continue its momentum this morning. Data out of China is positive, overseas markets continue to run higher and sentiment is positive.

The bears will argue that the buoyant mood is a contrary indicator, but contrary indicators haven't worked in this market. Until the price action changes, forget the bearish arguments and play the cards you are dealt as best as possible.

We have a positive open on the way and plenty of underinvested bulls hoping to buy a dip.

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