An athlete trains constantly to get better, practices hard and gives every ounce of effort to be successful. They are a rare breed, those with God-given talent who are able to excel at just the right time. We recently were treated to some amazing performances in the Olympics, some by well-known personalities and many by new faces. And oh the joy and elation of winning a medal. Athletes take what they learn on the practice field, pool or gym to center stage and perform at their optimal best when the spotlight is on. It’s a beautiful thing to watch.
It seemed as if the climb up the mountain was over, the goal achieved at last. We see many of the same struggles, trials and tribulations as we trade markets. No doubt there is not a similar ‘endgame’ for stocks – a perpetual price machine that won’t seemingly end. But we find there are times when the momentum of the market is so strong that the performance is undeniable. We have to step back and look to the bigger picture and see if we can find a reason to be engaged. Fortunately, the market performance gives us that opportunity.
There is no denying the market performance over the last couple of months. We may even want to give it a gold medal for the stellar move. In what appeared to be the face of a shaky economy, markets have ignored the current data and bolted out to near multi-year highs. Further, we have seen low volume rises along the way, which really is not too surprising (check out this article by Ryan Detrick of Schaeffer’s for more on how to interpret the low volume in recent years). If the economic data is lousy (which for the most part it has been) then why is the market rallying? Please remember markets are a discounting mechanism, looking toward the future. Today’s numbers were discounted six-eight months ago!
I looked across several technical indicators, different time frames and they all pretty much said the same thing – strong market performance with little in its way. Now, we could argue the market is running out of gas – and that might be true, and caution would be warranted – however as a trend follower some of the best gains are made riding momentum until it ends. Will this market rally end? We all know the answer to that question (ok, some of you are saying no way – I can hear you!). Perhaps that is not the right question to ask – rather, how will I make some coin on the next move (whether up or down). Nobody rings a bell at the top or the bottom but trends are certainly defined and playable in the right conditions.