HOW FEELING FROGGY IN THE MARKETS LEADS TO BEATDOWNS
As we approach the 13,000 level on the Dow, in the process breaking up and through the generational resistance point I have been discussing for the past few weeks, it is important to take note of what has been working in this bull market. In fact, this is what works in most all bull markets. No rocket science involved. In fact, not much of anything involved except for one thing.
That one thing is having common sense enough to realize what the current condition of the market is and sit tight in positions that reflect the condition. Bull markets, with the exception of 1999, are not meant to be traded furiously. They are not meant to be guessed, poked and prodded for weakness. By that I mean the constant fascination and obsession with making sure you don't get hit with a pullback, giving into some short-term pain.
Short-term pain is part of being in a bull market. There are very few that can guess what the correct time will be to initiate hedges to counter any short-term pain they may experience at the hands of the market. It's a game that should be avoided at all costs.
We are in a time and place where the abundance of information at an investor's fingertips literally makes it seem perfectly acceptable to feel froggy in the markets, jumping from place to place. Excess trading activity is after all reflective of the increased volume of information. Excess information and the activity resulting from the digestion of that information is only normal.
In the end what all of that noise amounts to is confusion. You have a thousand competing angles in your head when only one angle should matter. That is at what angle the current uptrend or downtrend is proceeding.
In all likelihood, a breakout over 13,000 will occur soon. I think that breakout will fail. That doesn't mean you should hedge your exposure or move into 100% cash. If you want to trim some positions, be my guest. It's probably a prudent decision.
Even if we are at a point where we are putting a substantial top (highly unlikely, by the way) you will have plenty of opportunity and fair warning to get out of the way. Tops - especially after the kind of run we have had - are a process. I haven't come across one major top in roughly 18 years of grinding that hasn't given whomever wanted to liquidate multiple opportunities to do so.
If you're feeling froggy, go to the gym and jump rope. It will be cheaper and better for you than jumping from place to place in your investment account.
