U.S. Markets closed

S&P 500 Near Highs of the Year: How to Invest Now


Stocks were having a great year for the first four months of 2012; up over 12% in the first quarter alone. The S&P 500 (^GSPC) spent much of April seemingly consolidating gains. The feeling at the time was that the country's painfully slow economic recovery was picking up steam. In Europe there was hope (always a red flag) that Greece would survive its elections, effectively ring-fencing the other PIIGS and stopping the slide on the continent.

Then it all went wrong. Since the beginning May markets have suffered through an insane Greek election, demonstrable slowing in China, downward revisions to our trailing economic growth along with cuts to future GDP, and most recently, the least inspiring earnings season in recent memory.

If you thought stocks would have moved lower in the face of that nightmare you're in good company. Whether it was from a lack of believers chasing the tape higher, a classic "Wall of Worry," or just because trading stocks is supposed to be hard, the S&P 500 is now right where it was at the the end of April. As of Tuesday's close stocks are up about 11% for the year, sitting just under 1,400 and within 20 points of the highs of 2012, and 30 points away from levels not seen since 2008.

The trade since the lows made at the begging of June has been "Sell the Rips and Buy the Dips." Stocks have been trading in a textbook pattern of higher highs, and higher lows, a formation called a channel. Those who regard charts as voodoo can dismiss the price action and are welcome to come up with better theories via comment or Twitter.

Your real actionable investment thesis is this: Trade the market you have, not the one you think should be. It's not "contrarian" to lose money while complaining about the irrationality of the tape. Trading the range has been the only way to make money since 1998. And 2012 is just another example of how hard that process is.