Worry is a misuse of imagination.
-- Dan Zadra
The major indices have been holding steady as volume declines and breadth slips. There has been a distinct lack of energy lately but the very strong underlying support is not going away, and the anticipatory bears are constantly being squeezed and helping to drive us higher.
We have a gap-up open this morning and market commentators are scratching their heads over the reason. The Associated Press is attributing the strength to "U.S. Economic Hope" while others are calling it just a continuation of the recent pattern of trading.
It is likely that the indices' steady grind higher is due, at least in part, to the growing number of market players who are trying to anticipate a market turn. So far in 2012 we've had just one day of any aggressive selling, and it's hard to argue with the proposition that we are due for some weakness soon. The problem for the bears is that they create a "wall of worry" dynamic that keeps the market going as they mistime a top. The harder they try to call the turn, the more they add to the upward pressure when they are wrong.
So will the Fed interest rate announcement serve as a catalyst for a reversal? The bear argument here is that the improved jobs news recently is cutting the need for further quantitative easing, and that is a major negative. The problem for the bears is that no one was expecting any major quantitative easing announcement today anyway. The failure to announce QE3 will not be a surprise, and it is very unlikely that the Fed is going to go out of its way to foreclose the possibility of QE in the future. The bears are going to have a tough time spinning the Fed's lack of clarity about quantitative easing as a major negative.
Avoid playing the top-calling game. That doesn't mean you stay wildly bullish and buy on margin, but as long as stocks continue to trend, there is no reason to fight them. You might also want to stay focused on individual stocks and forget the big picture. If you manage your individual positions closely and take some partial gains as things become extended, you need not have any major fear of being caught in a reversal.
Too many market players fail to understand that it is very easy to lose more money worrying about a reversal than it is to lose in an actual reversal if your timing is off just a bit. We always need to be vigilant and watch for signs that the market is about to shift gears, but making major bearish calls while we are uptrending and hitting new highs is a very tough way to make money.
We'll see what the market does with this gap-up open and the FOMC interest rate news, but the bears keep on being caught leaning the wrong way, and that is keeping a very strong bid under this market.
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