Turn Down the Noise

The hardest part about riding a rally correctly is the wall of worry that accompanies every bull market. As prices rise the call of the bears can become overwhelming. And the cacophony of voices only mounts as “smart money” investors who were early to the party become increasingly skittish about protecting their gains.

We’ve had a number of smart money calls for caution over the past few quiet August weeks. Just yesterday on CNBC noted floor trader Art Cashen said he “sold some stock” in financials, preparing for a pullback. Many technical analysts insist we are overbought and due for a correction. One well known aggressive trader who trades our style and has his own subscription newsletter this week said that he is not eager to be long, although he won’t shy away from outstanding opportunities. Which begs the question, if he’s not long the outstanding opportunities that have already presented themselves what has he been doing?

Yesterday the market opened quietly but sellers quickly gained control. Losses were swift and harsh, especially on the NASDAQ. If you were on edge given the prevailing smart money sentiment it might have been difficult to check your emotions, which can be a trader’s most difficult battle.

But a quick check of volume indicated that trading during the first hour yesterday was the lightest of the week on either exchange. There wasn’t much conviction behind the selling. If anything the lack of volume created an easy opportunity for the bulls. They took full advantage.

By the end of the day the indices clawed back their losses and posted modest gains. More importantly, after staging recent breakouts to new highs and having been stymied in attempts to move higher they had now tested the downside and lived to tell the tale. That left the market open to the upside move that had eluded it, and we got that with this morning’s gap up open on Intel’s (INTC) raised guidance.

Investors are climbing the wall of worry again as the indices have surrendered much of their early gains leading to concerns about a reversal day. That might well end up being the case. But for now watch your stocks. If they are holding up well in their uptrends and not selling off on volume stick with your positions. And remember that a number of the stocks we have recommended that have outperformed have eight week hold rules in effect, whatever the smart money says.

We’ve acknowledged that this has not been the easiest rally for growth investors. Leadership has been narrow and mercurial and much of it has been thin. We’ve discussed why this is likely the case in another column.

But that’s no reason to sell winning positions. The market uptrend continues. It won’t forever. But while it does stick with your winners. And by all means, turn down the noise.