No More Vacation For Traders

| August 21, 2012 | 0 Comments

Every man who possibly can should force himself to a holiday of a full month in a year, whether he feels like taking it or not. –William James

It seems that the vacation season is having little impact on the market this summer.   I can say this with confidence because the S&P 500 continues to move higher on anemic volume.

The SPDR S&P 500 (SPY) is now up 11 of the last 12 days and is set to gap open higher again this morning.

Yesterday many traders believed this could be coming to an end… But no go!

For a while yesterday, it looked like we might finally see a little profit-taking.  But by noon, the buyers were back and the market ended with a strong close near the highs of the day. To help the market along, Apple (AAPL) was the primary driving force as market players found it the easiest stock to chase to gain market exposure.

During my last few Tuesday articles, I discussed market technicals and market momentum. 

In addition, how markets that are acting in this manner tend to stay sticky to the upside during these periods of time.  This sort of action tends to create a large supply of underperforming market players and the only way traders envision catching up to performance is by buying when they can. In other words, they are extremely anxious to pounce on any pullback.  And what’s worse, the market often won’t even go red before the dip-buyers jump in.

Now, let’s talk about underperformance for a minute.

According to a report from this morning, only 11% of all hedge funds are beating the S&P 500 so far this year, which is the worst underperformance in history.

Isn’t it amazing to think that nearly 90% of those who claim to be the best traders and investors in the world can’t keep up with the stock market.  

Is it any wonder that these up trends and rallies are loved so little?

Here’s the kicker…

The irony is that the market action we are experiencing now makes it even harder for these hedge funds to catch up.

The lopsided, unidirectional action doesn’t favor active managers who try to play volatility.

The most important fact to remember is that you have to be in the small handful of stocks that are working and then stick with them even though they become tremendously extended.

And don’t forget as I’ve said before, normal human reactions are a handicap.

Bottom line…

Eventually the action will shift just like it always does, but trying to anticipate when is killing many market players right now.

So, be alert, be cautious, and if you must be in the market, buy what’s working.

Safe Trading,

Marcus Haber

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Category: Options Trading Basics

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.