THE TREND IS YOUR FRIEND

The US markets moved higher in early morning trading yesterday, but the gains slowly disappeared when traders decided that it was time to take some of their profits off the table.

Ben Bernanke will have a second term as Chairman of the Federal Reserve, and the market, of course, always likes continuity. This plays into the hands of the Bulls who have already been having a lovely time lately.

Stocks are extended, in need of some consolidation – so it seems wise to take some profits and enjoy some of these last days of summer. It is difficult to put too much money to work when we believe both that the nation’s economic problems are not all solved – and the market is extended to the upside.

But the trend is your friend until it is not, and currently the trend is with the Bulls. So the winning hand has been to stay with the trend – remembering that the market can continue in a direction much longer than anyone expects. Folks who have stayed on the sidelines have been left out of the “trend is your friend” rally.

Our view, as we seem to say daily, is to look for good chart set-ups, making small moves and taking profits along the way. There seems no reason to stay entirely out of this market. But it will pay to not get cocky – to remain vigilant. While it might not happen quickly, at some point the tide will turn, and it is never fun to watch profits go away. And the number one rule has always been to protect profits.