How to Ignore Wall Street’s Worries

Once again, all of that worry for nothing…

Remember Wednesday? I told you that for the first time in months, a majority of stocks were below their respective 50-day moving averages. The market looked terrible. But in fairness, it kept its head above water (and above its all-important 50-day moving average).

Thursday was different. Everything bounced back in a big way. Right at support. Again.

Markets surged. Japan even took a breather from its elaborate skydiving maneuvers. We will see whether or not the parachute fully opens soon enough.

The weekly data dump was also surprisingly pleasant. Retail sales beat estimates. Initial jobless claims remained near five-year lows.

But the real worry du jour is the Fed. Will it continue to maintain short-term rates?

“The market is saying, ‘The fundamental economic outlook really hasn’t changed much, but we are getting more worried about Fed policy,’” chimes in chief Goldman Sachs economist Jan Hatzius in the Wall Street Journal.

So investors are starting to doubt the Fed’s commitment to keep short-term rates down. As far as I’m concerned, this is noise investors need to ignore. File it under “fiscal cliff” and “sequester”. If you’re trading off of Fed policy scuttlebutt, I don’t think you have much of a chance at seeing the markets very clearly…

In fact, making quick, radical decisions in this tape will just wear you down. You simply have to take a wider view of the markets. Buying and selling at every turn will only make you crazy (and broke).

As I told you earlier this week, this particular bounce off support has been different from what we’ve seen so far during the current rally. Stocks did not immediately rocket back to new highs. Instead, we got to watch a little back-and-forth drama in stocks for the first time in many, many months.

But if there’s one thing you should’ve figured out by now, it’s that you can’t lean heavily on the short side as the market approaches support. That’s a surefire way to get burned.
Sure, there’s plenty to worry about (there always is). But until price tells us otherwise, we have to respect the trend.

Regards,

Greg Guenthner
for The Rude Awakening

The Daily Reckoning