How High Can This Market Go?

That was the question new newsletter reader Jack asked yesterday as we were discussing my trend tracking methodology.

As an experienced investor, he was looking at all the fundamentals that can drive the markets ranging from corporate deal making to stronger than expected earnings and outlooks. Oh yes, and the revised forecast from Thomson Financial changing their S&P; 500 1st quarter earnings projections from (only a few weeks ago) 3.3% to over 8%.

Nevertheless, Jack was trying to figure out what the market might do next based on fundamentals. There is an easy answer which is that ‘nobody knows.’ The markets are so complex and intertwined that no individual, no matter how sophisticated his computer system may be, can analyze all facts in such fashion that he could come to a definite conclusion as to what the market will do next.

As an investor, Jack simply has to come to terms with the fact that “he does not know and never will.” However, one thing is for certain that all known fundamental facts are immediately reflected in the price of the underlying security.

This certainty has become the basis of trend tracking. We can measure where the ‘major’ trend in the market is. It can only go up, down or sideways. That’s it. Jack needs to accept that he does not have to drive himself crazy by following every bit of news information. He simply needs to be on the correct side of the trend.

That will allow him to establish his investment positions and provide for contingencies via an exit strategy. If he does just that, he will sleep much better at night and will be in control of his investments as opposed to the other way around.

So, how high will this market go? I have no clue, nor do I care to guess.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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