Since the low in March 2009, what has been truly remarkable about this market is how often it's made these one-sided moves. There is nothing unusual about rallies, but the rallies this market has been producing are amazingly lopsided. We have runs with eight, nine and 10 positive days in a row, and if there's any pullback, it's miniscule and doesn't last a day.
We are seeing another such run right now. Since mid-December, we have had just one very minor dip and that was completely reversed in a few days. The PowerShares QQQ Trust (QQQ) is up eight of the last nine days following the only real selling of the year on March 6.
The buy-and-hold bulls don't care about the artificiality of this action, but it does make it much more challenging for traders who make their livings playing volatility and market turns. Traders love up-and-down action, but when there is no down action, you're better off sitting with longs and doing nothing.
This action is a result of two things. First, the growing dominance of computerized trading, which disrupts the normal flow of trading, and second, the flood of cheap money that has been created by central banks with nowhere else to go but into equities. There are other factors at work, but those are the two main things that have occurred since early 2009 that have changed the nature of trading.
It's easy to complain about how things have changed in the way the market trades, but that isn't going to make us any money. What we have to do is adapt, and the most obvious adaptation is to give trends respect and don't anticipate that they will end just because they seem to have gone on too long. The worst thing you can do with this sort of action is to impose your subjective standards of reasonableness on the market.
Simply being aware of how the action is different than it was prior to 2009 is a big step forward in dealing with it. I don't see anything that suggests that we will return to the action of old. In fact, with more and more individual investors and traders giving up on the market, the likelihood is that the action will continue to have little resemblance to regular human emotions.
I'll be out the rest of the afternoon, so have a good evening and I'll see you in the morning.
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