One thing we know for sure about the market is that it will have ups and downs. It doesn't take any great wisdom to predict that a bear market will eventually occur but that is useless information if we don't time it with some degree of precision. Just because we know -without a doubt - that a bear market will occur doesn't mean we should rush out and short the indices. We could sit for years while we wait for one to unfold.
There are basically two approaches to trying to time the market. You either anticipate a turn or you react after it looks like one is starting to occur.
If you anticipate turns the problem is that you will have to be willing to be wrong for some period of time. Not only will your short position go against you but there is the opportunity cost of not participating in a rally that lasts longer than you think. Opportunity cost is defined as the loss of a potential gain when you choose a different alternative.
If you react to turns rather than try to anticipate them, you will never catch the exact top because by definition you can only react after there are some pullbacks. That seems to bother many traders that are intent on the glory of catching exact turning points but the irony is that they don't seem very cognizant of the costs of being early.
Opportunity cost can be hard to quantify which is why many market players don't seem to give it much weight. We don't know how much money we might make if we stayed with a trend but we do know the losses we suffer when caught in a market reversal.
It has always been my contention that market timers probably lose far more money in the form of opportunity cost than they avoid in actual losses if they used a reactive approach. In other words, you can make more money staying with a trend late in the game then you will lose by being caught in a turn. I don't have any hard evidence to support this but it has been my experience quite often over the years.
It is understandable that many market players are trying to anticipate a reversal in the market at this time but I am focused on the fact that many of the stocks I own are still doing well. I am still making money by being long so why should I reverse my position at this point?
Everyone has to approach the market in a manner that makes sense to them and I want to point out my thinking for staying with a trend as long as possible rather than giving into the pressure to predict a turn. Above all else you have to use an approach that makes sense to you and regardless of your approach a high level of vigilance is key.