Tuesday, February 07, 2012

Stocks Close in the Green Again; Uptrend continues

Just another day in this uptrend as stocks close higher on the day recovering from early morning lows. Volume rose on the day showing institutions had an appetite supporting the market on the morning dip. It is truly amazing this market is on, a straight line to multi-year highs from what appeared to a market heading for fresh bear market lows. For now, it appears the market is more focused on the Fed’s printing presses than any country from the European Union defaulting. Stop fighting the trend as it has been very painful for those who have been.

Yes, the market is “overbought,” but it has been for quite some time. Sentiment has come down off its highs as of late, so the crowd is anticipating some sort of pullback. Anticipation is a problem if you act upon a hunch. It will lose you money either by missing out on a move or compounding your losses. While it is true we are overbought, the market can continue higher. We have defined rules for exits and until those are met, we’ll stay long.

It will be nice when Greece finally defaults. The past few weeks every morning and night headline has Greece “close” to a deal with its creditors. Just get it over and done with, they are going to default one way or another. Greece has not shown it can stick to any terms it has promised, why even bother with a new set of terms? In the end, Greece cannot pay for its obligations and liquidation needs to occur. This is a painful process for those who are dependent on the government and it will take time for it to resolve itself. Trading off this situation is too difficult; we’ll stick with the trend.

A dangerous tactic here is chasing. It is never wise paying up more than 5% beyond a proper buy point. Often time stocks will reverse shaking out weak holders and late buyers. At this juncture and with the amount of stocks extended it would not surprise me a few of them shakeout weak hands here. If you do chase, make sure you are lightning fast cutting the position if it turns against you.

Stay disciplined and cut those losses.

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