MBA FaceOff Blog

The Trend is Your Friend

Christopher Myers

Simply put, the market is currently in a down trend.  Reporters argue that the last 3 days were “bullish” and “strong”, but what is there to show for it?  Volume on 2 of the last 3 days was non-existent and the 1 day where it did pick up, the market sold off heavy in the afternoon.  The NASDAQ is finding resistance at both 2600 and its falling 50 day moving average.  Is that bullish action?  From a technical standpoint, there is very little bullish about the current market.

But pundits argue, Greece is going to get bailed out (again) and closure to the whole situation in Europe will bring forth the bulls.  Fair.  Time will tell, but it’s also easy to put a band aid on a gunshot wound.  Simply put, Greece must default.   It all comes back to the risk-reward ratio.  Investors in Greek debt took a risk, and now it’s time for them to reap their reward (or lack thereof).  Caveat emptor.  “Let the buyer beware.”  The Latin phrase couldn’t be truer here.  The probabilities are currently in favor of a negative reaction to whatever announcement comes from Europe tomorrow.

In the U.S. markets, our team is eyeing the 2300-2400 level for the NASDAQ.  Many of the strongest stocks are seeing quiet accumulation, but the psychological factors underlying the market do not have enough fear to start a true, sustainable uptrend.   Therefore, the only thing to do is to be right and be with the current trend, which is down.  John Bogle, founder of The Vanguard Group, once said “The genius of investing is recognizing the direction of a trend – not catching highs and lows.”  As a team, we are heeding his advice and holding to our analysis.