Wednesday, August 6, 2008


The Path of Least Resistance Is Up ... For Now

It certainly is refreshing to see the market put together a couple of good days in a row, but the trading isn't nearly as easy as it might look. If you jumped into the leading groups Tuesday, such as banks and retailers, you would have lagged today, as the big moves came in steels, energy, coal and other groups that were weak yesterday. There are opportunities, but it's hard work and easy to churn if you make a misstep.

After a couple of strong days in a row, the bulls tend to get "performance anxiety" working for them. In a bear market, cash levels are high, and it is easy to match the indices without owning much, but when the market makes a strong move, there is sudden concern among managers that they may lag, and they are often inclined to chase rather than risk having no exposure.

There continues to be tremendous doubt about the health of this market. That means high levels of cash and an opportunity to climb the Wall of Worry as that cash inches into the market when we have some positive action.

The bulls have the edge here, but that doesn't mean it has been easy. I've heard a tremendous number of complaints from traders about how hard they have had to work to turn a profit. That is a function of a confused market with limited leadership, but for now the path of least resistance is to the upside.

Have a good evening. I'll see you tomorrow.

P.S. Volatility Can Pay

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