Below is an update on a previous topic that I find important as we are near all-time highs.
I prefer to let the market do its thing and tell me how to proceed. Making wild guesses and speculating on what it should do is pointless and often met with disappointment. Oh sure, it’s nice to have that conversation by the water cooler or in a bar among friends and colleagues, and it is fun to guess and see who is right.
But to make investment and trading decisions based on the unknown? That’s nuts! How many times have you been burned by trading on that type of speculation? Hey, eventually you’ll be right, just like a broken clock is right twice a day, but can you afford to lose that much before getting it right?
The markets will tell us the reaction to news next week. The market has risen smartly since early October, so we know there are a million reasons to sell (chief among them would be locking in some gains).
Didn’t get out of your plays on the last run down? Maybe this level in the SPX (see chart below) is enough to take some off. Do we panic and sell it all based on some speculation? How did that work for you last time?
I will make decisions to pull the plug on plays based on different criteria, but I will not take a guess on what the market is doing based on information that I cannot analyze properly. The charts and technicals will give me the best read on what may come next. Further, the lack of market correlation makes it much easier for us to be stockpickers.
News and the media can take our emotions on a roller coaster ride if that is all we rely on. Frankly, the news media has become infatuated with “shock value,” and as a result, the speed with which stories move mean that they are often riddled with inaccuracies. There is nothing worse than trading on misinformation before someone says, “Oops, sorry, got that wrong!” The charts and technicals will always be my guide over the noise from the pundits, experts and talking heads that make up the media.
Of course, the outlandish guesses will be duly noted if they turn out to be correct. “Hey, look at me! I guessed right this one time, so pay attention to me from now on!” Again, that doesn’t get the money, but it certainly is a headliner. See how quickly the media gravitated to the GWB story last week? How about the “rush to judgment” over the jobs report on Friday? Or, the fact the markets did not rally immediately when it was announced that Janet Yellen would be taking over at the Fed.
The economic situation here in the US is far better than is being postulated, and the market has sniffed it out. Some of the data we have seen bear out this fact, so this is not a guess. Industrial production grows at a modest pace, retail sales were weaker than expected (driven by higher gas prices, which are not good for the consumer), solid jobs numbers are being cumulatively reported, corporations are enjoying record profits, and a strong manufacturing/housing sector is fueling a renaissance. The drop in the market Friday was picked up quickly. Who bought that dip and held on?
I’ll say it again: I will let the market tell me how to proceed and yes, I will be late getting off a momentum market. Remember, the market correlation is LOW here, and stocks are performing on their own merits without regard to the market. Is it bad for Google, GM, Boeing and Salesforce.com to be performing well, reaching new all-time highs while the markets do their thing? The charts tell the story, and earnings season is upon us when we can expect surprises galore.
While the chart tells us price levels are somewhat extended here and they could drop a bit, trying to speculate where the top is is a waste of energy. Tops take time to build. They are a process. They reflect a change in psychology that builds slowly and a distaste for risk, and they reflect Fed policy. When price rejection happens, the shift is very clear.
For now, we’ll have to see how the markets respond to whatever news comes down the pike, and I will wait for that response and react accordingly.