The natural inclination of many traders and investors is to constantly look for the market to change its behavior.
The theory is that the goal of trading is to stay a step ahead of the market and the best way to do that is to look for the pattern of action to shift. It is a logical and appealing approach.
The problem with this strategy is the market has a tendency to trend in the same direction for long periods. In addition, daily patterns tend to repeat even as they become painfully obvious. This is especially so in the age of computer algorithms when patterns are often self-fulfilling.
Many market players think that through superior insight into big-picture issues such as the economy, fundamentals, valuation, politics, etc. they can predict what the market is going to do. They are convinced that they see things the market is missing and that gives them an edge. They also think those that believe the prevailing trend will continue indefinitely will eventually suffer dire consequences.
The problem is there simply is no way to use a big-picture approach to the market to time the twists and turns with any great degree of precision. There is no choice but to just sit and hope that the market will eventually see things your way. It carries very high opportunity cost but the desire to set yourself apart from the unwashed masses can be irresistible to those that think they have superior insight.
The current market environment is particularly vexing for the big-picture market timers.
They have plenty of nice neat arguments to explain why the market is going to run into substantial problems very soon. They always have great arguments. With the indices moving straight up since the Dec. 24 lows, and concerns about slowing economic growth and excessive valuations, the bears are even more convinced that some major problems are just around the corner.
I have no idea when all those very smart big-picture arguments might matter. I do believe, though, it is arrogant and unrealistic to think that we can anticipate what the market is going to do in the near term.
Once you admit you can't make those sorts of predictions then it becomes much easier to navigate the environment. You simply focus on the action in front of your face. That action will tell you what the market is doing and thinking. When it changes, then you change what you are doing.
Of course, it isn't always that easy to understand what the price action of the market is saying. Generally, however, you are better off if you expect the current action to continue rather than to change. The market will provide us with plenty of clues when a change is taking place.
Thursday morning we are seeing a continuation of Wednesday's action. There was a brief hiccup on Tuesday but the S&P 500 is up nine of the last 10 days. The "smart" pundits will argue that is excessive and can't continue much longer. The "ignorant" sheep stick with the herd and keep running in the same direction.
I'm one of the ignorant ones that stick with the crowd. Every once in a while I have an urge to be clever and try to run in the other direction but I'm usually stampeded by the ignorant herd.
What is this market going to do next?
I don't know but I'm going to stick with the crowd until the price action changes. I'm not going to be the genius that calls the exact turning point, but I'll be on the right side of the market most of the time.
We have a positive open on the way again. The action has been slow lately and volume very light. But the buyers are not giving up.