Current Market Action

What we have observed in reading hundreds of books on the markets, including ones published in the early 1900's, is that when investors start to throw in the towel in frustration at a trendless environment, and trend following is declared dead (which has happened numerous times), that is the time when profit opportunities arise. Trends, either up or down, tend to begin when least expected.

For now, the ongoing battle should continue between the positive effects of quantitative easing vs. bad news out of Europe along with the question of whether central banks will print enough money to buoy the markets. In the meantime, we will continue to stay vigilant, knowing that the recent false signals are a consequence of the unusually choppy, trendless market which will have an endpoint, as a new window of opportunity opens.

2011 has caused most all of the trend following wizards to be down. These are the investors interviewed in Jack Schwager's "Market Wizards" books and Michael Covel's "Trend Followers." Many have suffered double digit percentage losses. Experience has shown that trying to pre-empt or second guess based on impending news events hampers returns over time. We do not anticipate or predict where the market should be headed.

Price/volume action of major indices and leading stocks is the best way to navigate through treacherous waters, and 2011 has perhaps been the most treacherous. The 50,000 foot view is that 2011 is an aberration, thus explains how so many excellent long-term trend following wizards have lost sizeable money this year. When conditions right themselves, and they will since markets cannot stay choppy and trendless forever; that is where such investors excel.

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