Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Clarifying the Market's Current State


With a disciplined approach, setting stops and adhering to prudent money management, we should able to take advantage of other areas that may be bucking the trend.

I am not sure where it actually comes from or what is the root cause but investors typically have an inherent desire or need to impose their beliefs on the financial markets as if it would alter their course in order to better correlate with their own thoughts.

Regardless of how open minded I attempt to remain I have often found myself holding such strong convictions about a coming move with no real basis other than my inner feelings. Typically it is only natural to build on this gut instinct, subscribing to supporting data, which of course makes us feel better about our ideas. The problem however, is that the financial markets don't care about our thoughts and ideas, nor will they alter their direction because we feel so strongly about a move in one direction or another.

To help us stay in synch with the market and its direction many will view a snap shot of the market through a chart in order to determine a few basic variables such as if the market is trending higher or lower. Is momentum picking up or drying up? Are we closing in on all time highs, or all time lows? Does the market look over sold or over bought? While understanding these things and respecting them helps to clarify the current state of the market and form an educated opinion of what the future holds, it is still merely guard rails keeping us on the right path, not a map telling us where we need to go. If one tends to over think the message the general market is sending, he may miss out on other opportunities in other areas because of remaining only focused on only that one particular area.

I spent the bulk of the weekend going through stock charts in an attempt to dig down a bit into what is actually taking place within the market. At the end of the exercise I took away a simple and profound lesson I have learned several times, but obviously needed to re-learn once again which is to let the general market be your guard rails, however let the individual stocks be your sign posts.

Anyone taking a quick glance at the S&P 500 will see a sharp decline followed by a few light volume bounce attempts. It doesn't take a rocket scientist to tell you that at least right now, the picture does not look so hot and at best the action will remain choppy for some time. Rather than looking at the index for what it is I have allowed the average to be the basis for my thesis for all of my trading, keeping me away from some excellent moves. The average is heavily weighted in financials, 20.77% to be exact and this picture correlates directly with what is going on in the financial sector. Does that mean I think buying up Goldman Sachs (GS), Bear Stearns (BSC) or Bank of America (BAC) on the cheap is a good idea? No sir, I continue to believe these stocks are doing what their charts say and that is trending lower and will be laggards for some time. But what it does mean is that if the financial stocks are weighting down this index, are other stocks following suit? Not necessarily.

I stumbled upon Lam Research (LRCX) closing Friday off 10% from recent highs, however still up 7.8% for the year and consolidating around an area not seen since March 2000. Trading at 12 times trailing earnings with a $4.70, 2007 estimate, does LRCX care what the S&P 500 is doing? No, not at all. While it may create a little head wind if the general market is sagging, the stock is bucking the trend and commands our respect.

How about Synaptics (SYNA) that recently broke to new all time highs and hasn't quite gotten the memo about a possible recession or issues facing the credit markets. Or Iomega (IOM) currently 8% off multi-year highs and consolidating gains in a manner that suggests the stock wants to move higher in the near future. What about Biotech standout Celgene (CELG), which is actually an S&P 500 component. Is the stock following the S&P 500 pattern? Should we brush off the resilience and current consolidation only slightly off highs, remaining in a strong multi-year uptrend because it is grouped in with a sour bunch? No sir.

My point is simple, while I still believe it is very important for us to respect, review and understand where the general market has been and may be going, we should also remain disciplined in our unbiased approach towards other stocks and sectors. Sticking our head in the sand because one area is damaged may keep us out of harm's way, however we may be doing nothing more than missing solid opportunities and being closed minded. With a disciplined approach, setting stops and adhering to prudent money management, we should able to take advantage of other areas that may be bucking the trend. Keep an open mind and make sure to look at the entire picture, not just the one everyone is talking about.
< Previous
  • 1
Next >
No positions in stocks mentioned.

<= p=" "><= p="">


Featured Videos