Ignore Dogmatic Market Opinions, Focus on Opportunities Instead

 | Aug 09, 2018 | 8:15 AM EDT
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People who write about the stock market often tend to be sensationalistic. Strong opinions generate attention. A screaming headline that the end is near or that the upside action will greatly accelerate is a good way to attract some clicks.

However, what works in stock market journalism doesn't necessarily work well for those that actually are trying to navigate the market and make money. Quite often, the best approach to the market is not to have a strong opinion about what might happen next. You don't need to be a growling grizzly or a rip-snorting bull to make good money. You just need to focus on navigating the action as it develops. An open mind in a mixed environment can be far more beneficial than a dogmatic opinion.

We currently are in one of those environments where strong opinions are not helpful. Good news, such as earnings and economic reports, is holding the market near highs, but bad news, such as tariffs and interest rates, is keeping the action contained. The trend is positive, but individual stocks have been inconsistent.

We also have the slow seasonality of August impacting the trading environment. For the next couple weeks, the ranks of traders will be thin as last-minute summer vacations become the main priority. August and September tend to be the weakest months of the year and many traders will bide their time for that reason alone.

The overall market action right now isn't at all bad. The indices are near highs, there are a fair number of stocks hitting new highs and select stock picking is working. However, trading has been challenging due to choppiness, rotation and lack of sustained momentum.

The thing that has been the worst approach in this market is trying to make major directional bets on the indices. There just isn't much movement and overbought conditions don't seem to matter much. Yesterday was a good day for a pullback as things were extended, but the market dealt with that churning action and the S&P 500 was nearly dead flat.

So what is the best way to approach this market? Stay opportunistic, keep time frames short, manage trades closely and focus more on stock picking than market timing. There may not be many stocks making strong moves, but there are always a few setups. Yesterday, for example, I mentioned two small-caps that made big percentage moves and I'll be looking for more action like that.

Avoid the temptation to make big calls and embrace the fact that this is a slow summer market right now with a generally positive bias. There are trades to be had, but you will need to work harder than usual to find them. Calling market tops in this sort of environment is sure to be a costly approach.

The early indications this morning are flat. Headlines about more China tariffs on U.S. goods are being ignored.

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