We have just finished the first big week of earnings releases and on a shortened week, yet the market is still standing tall. The SPX 500 (see chart below) just finished the week above 1500, a mark it had not closed above since 2007, a significant milestone. The Dow Industrials is within a earshot of a new ALL TIME high, yet the skeptics are abound. I understand how difficult it is to climb on board a market that breaks out, our tendencies are to ‘buy low, sell high’. The worst feeling buying when everyone else is selling. But an even worse feeling is not recognizing that it is OK to buy and missing a great run. These signals are not often but are very clear – if you are looking them.
We talked a couple weeks ago about a concept called ‘embedded stochastics‘, which is repeatedly mentioned by famed technician Ira Epstein. It is a condition favorable for bulls or bears, as where the indicator lies shows when it is time to ‘sell the rips’ or ‘buy the dips’. Obviously the current condition favors the latter. Much has been hated about this January rally (aren’t the all hated and missed badly by the crowd?). But let’s look at some facts before we pass judgment. I’m not overly bullish or ‘giddy’ about the market, I have been selling many things of late and adding cautiously WHEN I see the chart or technicals fit the right profile.
Volume has expanded this month as many try to jump on board and shorts are forced to cover positions (recently record high short interest has started to decline). Price action has trumped news, the recent thought about a market collapsed following the ‘fiscal cliff’ scenario never materialized. Earnings have been rather decent so far, but even a whiff by Apple could not derail the market. This would be a strong indication of a less correlated market of stocks. Sentiment continues to show complacency via the VIX and some polls, and I know that’ll change at some point – but the trend is your friend until it is not (or just changes). Will I time it perfectly when the trend shifts? Not my game to play tops or bottoms, unless I get lucky.
To a market technician focused on charts and interpreting the condition of the markets there have been no surprises. That’s not to say it has been easy, but keeping focused on the market in front of you rather than the noise of the media, pundits and opinions makes for cleaner decision-making. However, the speed of moves (too fast) can generally be an issue, not being able to get on board at the right moment or unload quick enough. But let’s remember trading is not a game of perfect, just do the best you can to ‘make yours’ and live to fight another day.