Tellling the Market What to Do Might Lead to Disappointment

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 is met with disappointment.  Oh sure, it's nice to have that conversation by the water cooler or in a bar among friends and colleagues, fun to guess and see who is right.  But to make investment/trading decisions based on the unknown?   How many times have your been burned by trading on that type of speculation?  Hey, eventually you'll be right - just as 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.  As the market has risen smartly since turning up in early October 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.  But 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 chart and technicals will give me the best read and prepare me for 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 the 'shock value' and speed of stories that often times we see a lack of accuracy and consistency.     There is nothing worse than trading on misinformation when someone says 'oops, sorry...got that wrong'.  The charts and technicals will always be my guide over the noise from the media, pundit, experts and talking heads.

Of course, the outlandish guesses will be noticed if correct, and that's all fun, right?  'Hey, look at me...I guessed right so pay more attention to me from now on'.  Again, that doesn't get the money but certainly is a headliner.  See how quickly the gravitated to the GWB story last week?  How about the 'rush to judgment' over the jobs report Friday?  Or, the fact the markets did not rally immediately when it was heard 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 it's not a guess.  Industrial production grows but at a modest pace, retail sales are weaker than expected but he holidays were probably mixed (though lately driven by higher gas prices which is NOT good for the consumer), solid job numbers (cumulatively), record corporate profits, and a strong manufacturing/housing sector which is fueling a renaissance.  The drop in the market Friday was picked up quickly.  Who bought that dip and held on?

So, I will let the market tell me how to proceed and yes, I will be late getting off a momentum market.  Let's be reminded 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.  Earnings season is upon us -- surprises galore!

While the chart tells us price levels are somewhat extended here and they could drop some, trying to speculate a top is just not the best advice.  Tops take time to build, are a process and reflect more a change in psychology (and distaste for risk) that builds over time (and reflective of Fed policy).  Price rejection when it happens is very clear and evident at certain moments.  We'll have to see how the market responds to the latest news but I will wait for that response - reactive rather than anticipatory as always.