Trading a Trendless Market

 | Oct 11, 2011 | 12:15 PM EDT  | Comments
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This commentary originally appeared on Real Money Pro on Oct. 11 at 8:51 a.m. EDT.

The feedback that I am getting from many subscribers' emails is that a market uptrend is now likely in place, but I respectfully disagree.

Just as it was hard to buy when the market was collapsing a week ago, it is hard to sell when the market is flying.

From my perch, the market remains trendless, and "buy the dips and sell the rips" remains my investment and trading mantra.

I remain underinvested because three of the four factors previously mentioned as conditions for an improving backdrop for stocks (market instability, a continued sharp division in Washington D.C. that continues to preclude the enactment of pro-growth fiscal policies and containment of the eurozone debt crisis) have yet to be resolved. I am somewhat comforted, however, that the plunge in sentiment in August has not yet resulted in a worsening of the hard domestic economic data (the fourth condition of becoming more invested in U.S. equities).

On the latter point, I suspect the next market debate will not be whether the U.S. is entering a recession but rather whether the domestic economy is entering an extended period of subpar and uneven growth that will be difficult for corporations to navigate and produce much in the way of profit advancement. This "new normal," influenced by structural headwinds, will likely limit the market's upside potential and discourages me from expanding my net long exposure at current price levels (and particularly after such a sharp move to the upside).

Given the plethora of economic uncertainties (around the world), I prefer to err on the side of conservatism. And, for now, I prefer to use the market's volatility to my advantage by emphasizing opportunistic trading over buy-and-hold investing.

It is from that source (i.e., opportunistic trading) that most investors/traders will likely deliver superior investment performance in the months ahead.

Doug Kass writes daily for Real Money Pro, a premium service from TheStreet. For a free trial to Real Money Pro and exclusive access to Mr. Kass's daily trades and market commentary, please click here.

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