A scenario that would frustrate the most people is if the market stays in a range for a while. Let me explain:
1) The perma-Bears want the market to go down and STAY down. I’m assuming it’s because they’ve missed the rally, they feel the market is overvalued, they’re afraid to buy near highs, or they’re just miserable people in general. Of course the market will have pullbacks and shakeouts, but I don’t see a prolonged correction over the near-term mainly because too many people want this or need this to happen.
2) The perma-Bulls don’t matter because they rarely sell. They tend to ride things all the way up and then ride them back down again. That’s why I always encourage keeping an open mind when it comes to the market. It doesn’t make sense to always be Bullish or Bearish because the market is not always in an uptrend or a downtrend.
3) If we stay in a range, stock picking can play a big role. For example, in 2007, the S&P 500 was up +3.5% and Ken Heebner, one of my favorite portfolio managers, was up +80% in his fund. How did he do it? He was concentrated in the strongest stocks he could find. I also did very well that year and was up +72%, as many stocks in the commodity space exploded to the upside while the major averages meandered around.
4) So far, this year is shaping up the same way. The market averages aren’t doing much, but individual stocks in leading sectors such as Tech, Generic Drugs, Semiconductors, and Biotech are significantly outperforming. This strategy isn’t for everyone, but if you’re willing to put in the time, do a little homework, and have some conviction, I feel that this year (more than any in recent years) will truly reward strong stock selection. Good luck trading!
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