Markets are always right.
Most of us try to predict what the markets are going to do. We try to weigh the headwinds and the tailwinds and make a determination which wind has more strength. Unfortunately, that has proven time and again to be the wrong thing to do.
I have nothing against the pundits and experts who come on TV and proclaim what is going to happen. They have conviction in their belief and analytical skills and (likely and hopefully) are placing their money where their mouth is. But I cannot trade on someone else’s conviction.
I have conviction in my system. I look at the facts, the trends and make my trade decisions. That is not to say I make money on every trade. But I follow a system. The biggest challenge I have is to control my own behavior. To not be swayed by anyone or anything other than the market itself.
Because the market is the truth, and the market is always right.
In fact, the market is a better predictor than most of us. This year market action is a proof of that. Coming into the year, most analysts were bearish on the market and predicted the markets would fall. The reverse has happened so far. And it looks like we will end the year with a healthy gain.
What the market was telling us was that the Fed’s actions would bring the inflation down. And the companies will be able to weather the higher inflation and still manage to eke out some growth. The market pricing has been signaling that all year.
So, what are the important market facts we have at this time?
There are 245 stocks in the S&P 500 that are trading over their 200-day simple moving average. And 346 stocks in the S&P 500 are trading over their 50-day simple moving average. This is an improvement from just couple of weeks back. So, overall market direction is up.
The S&P 500 has been up 11 out of the last 13 trading sessions (days). This seems too steep of a ride up and we know that markets do not go up in a straight line. Sometimes they do go down in a straight line but very rarely up.
So, while the trending is bullish, there is a risk to the downside from a very short-term perspective. I am not going to worry about my long-term positions but am going to be careful with my short-term trading.