It is not the cares of today, but the cares of tomorrow, that weigh a man down. --George MacDonald
Although the market was slightly weak Tuesday, we had another good example of the very strong underlying support that has been in place for three months. We hit the lows shortly after the open and then the dip-buyers spent the rest of the day looking for entries. They were particularly aggressive with Apple (AAPL) again, and that helped the Nasdaq and Nasdaq-100 to climb straight up all day and close nearly flat.
The lesson is to keep buying the dips and don't be too bearish until there's weakness that lasts longer than a few hours. While some sort of pullback is long overdue, trying to anticipate it has been a terrible approach to this market. We are much better off sticking with the trend and taking the risk that we may wake up one day to ugly action.
Worrying about the possibility of a sudden one-day crash is one of the most unproductive things that market players can do. It is an understandable fear, but far more money has been lost worrying about a one-day crash than has actually been lost in one. Even when these big, sudden downside moves do occur, they don't happen when the market is at a top.
For example, if you look back at the 1987 crash, the market was well into a correction long before the dramatic crash. If you had been managing your positions closely and selling things as they broke down, you would have already been heavily in cash by the time the big crash occurred.
That also was the case in both 2000 and 2008. The really big drops in the market didn't occur until well after we had already topped out and been struggling for a while. If you had overstayed your welcome, you still would not have suffered much if you kept stops tight and stayed discipline.
The important point is that you don't need to keep anticipating a market breakdown to stay safe and protect your capital. You may end up giving back some gains, but in a market like the one we have now you will be ahead if you stick with the trend rather than predicting its end.
We are at one of those junctures where the trend seems overextended and due to end at any time -- but that has been the case for weeks. It has been far more productive to stay with it and not fight it. Sure, you may be caught with too many longs eventually, but racking up gains on a daily basis will provide a good cushion.
We have minor strength to start the day and all the worries and concerns continue to be unjustified. The way to play this market is to stick with the trend as long as you possibly can and don't worry about trying to time a top.
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