Earnings season is under way, and one thing individual investors need to remember is that it's the market's job to keep its participants off-balance at all times and use a seemingly infinite variety of methods to do just that.
Even when the market behaves in a consistent manner - as it has done over the past ten months by bouncing like a red rubber ball at any hint of weakness - investors will always have a hard time letting go of the need to rationalize the action.
We saw it at the beginning of 2008 when investors had difficulty accepting the fact that the bulls market had come to an end, and we saw it last year when we shot off levels that only the most pessimistic of bears thought possible.
While we need to always be aware of the bigger picture and have an understanding of the macro factors that could contribute to a change in the overall trend, the fact remains that one of the easiest and most consistent ways to approach the market is to respect the pricing action that is in front of us. Many investors are consistently looking for the next major market turn, but while major changes in the overall trend will always occur, timing them perfectly will always be a function of luck rather than skill.
With earnings season getting under way, an economy that continues to struggle and complacency levels at an extreme level, there are plenty of reasons to make sure we have a plan in place should the action start to break down. The argument that this market is behaving in an irrational manner is quite salient, but as Keynes said, the market can remain irrational far longer than you can stay liquid.
There are plenty of potential landmines out there, but so far, there's been no signs that the character of this market has changed. Dip buyers remain aggressive and there's still good speculative action under the surface.
So, make sure you have a plan in place in case conditions start to change and keep capital protection at the top of your focus list, but don't be too quick to start betting with the side that has been completely unable to gain a toe-hold for almost a year now