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Shut Up and Run With the Bulls

Sometimes it pays to squash your doubts and trade on what you see.

This column was originally published on RealMoney on Oct. 13 at 12:05 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.

A couple of weeks ago, I was one of many commentators

lamenting the hype

about the widely anticipated new high in the

Dow

. It felt more like a sporting event than anything else. The new high did occur reasonably close to crowd expectations, though some could argue otherwise. As this strong market becomes even stronger, I am becoming ever more aware of the shift in focus from any semblance of risk control to all-out "hop on board or you'll miss the train" sentiment. That troubles me, but not in the way you might think.

The crowd is virtually always right -- that's what creates trends. But the crowd needs balance because all transactions have two sides, a buyer and a seller. So when the crowd becomes almost unanimously bullish and puts its money behind that bias, balance goes out the window and experienced traders know that a dramatic change in the trend is imminent.

But isn't this the same dynamic that occurred during the frenzied buildup to the Dow's push to new highs? A couple of weeks ago many, including me, were hoping that everybody would just shut up so the market could move higher in a more orderly (read, "tradable") manner. Now that the event is behind us, many traders are waiting for a pullback and are not happy that the desired pullback is so widely anticipated. Either way, the likelihood of a market event occurring seems to be inversely proportional to the number of traders waiting for it to occur.

So now we are dealing with an overextended market that's advancing on pretty good breadth. That's a

recipe for big gains, yet many (once again, including me) are having a tough time buying into the obvious uptrend. That makes for a pretty tough market environment, despite the strong uptrend.

Sometimes it pays to just run with the bulls, quietly raising trailing stops and working extremely hard to shut out the dialog and inner turmoil to simply trade on what you see.

Looks to me like technology is finally making a move, even the much-maligned semiconductor industry. After repeatedly bumping up against $35, the

Semiconductor HLDRs

(SMH) - Get VanEck Vectors Semiconductor ETF Report

finally broke out Thursday on heavy volume. If you're long, try giving this some room and place a stop down below support.

A reader asks about the breakout in

TheStreet Recommends

Palm

(PALM)

. There's nothing much to talk about, really. The stock has blown through multimonth resistance after a three-month base-building process. With volume three times normal, I'd say this stock has some room to run.

Terex

(TEX) - Get Terex Corporation Report

has more than tripled in value since mid 2004. It has also been consolidating for the past six months. Over the past three weeks, the stock has run up 25%, but it doesn't appear ready to slow down. Still, if you're already long, try protecting your recent gains with a stop just below $50. The next logical support level would be $40.

Looks to me like more money is starting to flow into emerging markets. The

iShares MSCI Emerging Markets Index Fund

(EEM) - Get iShares MSCI Emerging Markets ETF Report

unsuccessfully tried to move above $100 over the last few months. Finally, Thursday's heavy buying pressure was able to get the deed done. I'd look for $100 to act as support now, and I'd probably keep a stop just below the 50-day moving average.

Nordstrom

(JWN) - Get Nordstrom, Inc. (JWN) Report

has been on a tear since early July. The stock has been moving almost straight up, only pausing briefly at prior resistance at $42.50. While the sky's the limit, it's undeniable that this stock has a lot of investors anxious to take profits at the first sign of weakness. With the holiday season coming on, it could still run for a while, so try using a trailing stop to protect your profits rather than selling it outright.

Be careful out there.

At the time of publication, Fitzpatrick was long Semiconductor HOLDRs, though positions may change at any time.

Fitzpatrick is a freelance writer and trading consultant who trades for his own account in Encinitas, Calif., and contributes to

TheStreet.com Short Advisor

. He is a former co-manager of a hedge fund and teaches seminars on technical analysis, options trading and asset-protection strategies for traders and business owners. Fitzpatrick graduated from the McGeorge School of Law and was a fellow at the Pacific Legal Foundation, a nonprofit public interest firm specializing in constitutional law. He also practiced law in the private sector before pursuing trading as a full-time career. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Fitzpatrick cannot provide investment advice or recommendations, he appreciates your feedback;

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