Logic. The one thing you should never apply to the stock market. Play what you see, as I always say, not what logic dictates. We can say logically that all the headaches we know exist from froth to negative divergences should be killing this market. P/E's alone enough to get the job done. That doesn't mean it's what we will actually see. Logic says one thing. Price is saying another for now. It's why I always say don't let emotion make you force trades that aren't there. It's so tempting to short this market with aggression. Part of me wants to do that but price action just isn't occurring in a way that says it's safe to do just that. I only play what the market tells me, but right now the market isn't telling me anything at all worthwhile.
There’s not anything to trade on with safety. Cash to me is the best position, but that doesn't mean it really is. If you individually can find trades that make sense I wouldn't blame you one bit for going in to that trade, whether it be long or short. Just keep stops tight enough. Don't do what I did with Union Pacific Corporation (NYSE:UNP) thinking a great company can't sell too hard. It can and does. Don't be me. Keep those stops appropriate. So for now we're nowhere. The bears have done nothing significant, but cause a minor pullback, which has the market flat for the year. Technically they've done nothing to turn things bearish. No gaps lower either. Just nothing from nothing overall. We're in no man’s land for now. No fun. but it is what it is.
If we break down the market more from sector to sector and even stock to stock there are some bearish signs, but nothing definitive, yet, since this has happened before only to see miraculous recoveries out of the blue. Many leaders throughout the market world in varying sectors have broken down through 20- and 50-day exponential moving averages only to back test, but then fail and head back down. That's becoming more normal than we've seen in many months if not years. Somehow the market still hasn't broken, yet, but we are seeing more of that from individual stocks. If that trend continues maybe, just maybe the bears will celebrate down the road. I wouldn't hold my breath. They haven't celebrated in so long they may have forgotten how.
We are seeing more and more bad earnings reports and more and more poor economic reports. The market finds a way around it by saying it's the weather. Why not. Everyone blames the weatherman. Why should that be any exception for the stock market. We saw some bad, pre-report warnings this week, but none worse than the one we heard from semiconductor leader SanDisk Corporation (NASDAQ:SNDK). The stock was taken apart, and that's the problem with individual stocks for the moment. No one knows when an unexpected announcement will take place from any individual stock, making it easier on the soul, if you have to buy, to buy ETF's. At least there's a measure of safety about how much you can lose.
S&P 500, or the SPDR Dow Jones Industrial Average ETF (DIA), or the PowerShares QQQ (NASDAQ:QQQ), seem to me to be the best way to be long if you must own something, or the itch to be in overwhelms you. With the economy clearly on the decline, weather related, or not, it seems the risk has moved up the ladder once again. Be careful what you get involved with. If you do own stocks, try to get one that has already reported and said things were fine. Also, avoiding froth stocks seems best, not because of their overall health, but because if a froth stock warns, you better look out below. No mercy on anything that's frothy and says things are deteriorating. This is a very risky environment, and, thus, you should treat it that way. Nothing is safe. Nothing is bearish either at this point in time. Go slow and be smart. Keep those stops tight.