As traditional market signposts lose their relevance, so does the traditional "buy-and-hold" strategy that investors have followed for decades.
Market pros in increasing numbers are eschewing the usual investing strategies and watching technical levels as their guides for making money. They examine temporary market tops and bottoms as guidelines when to sell and buy, and are in many cases utilizing funds rather than individual stocks to make their plays.
Earnings and economic data have proven unreliable to gauge the long-term prospects for the market, which has become a trader's battlefield. Money that once stayed put for three to five years can now get moved in three to five days or sooner.
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"What's happening is people have learned that if you don't take a profit it goes away," says Kathy Boyle, president of Chapin Hill Advisors in New York. "Even somebody who's really biased towards buy-and-hold is giving up."
The phenomenon has been on display markedly since earnings season kicked into gear this month.
More than half the company's in the Standard & Poor's 500 have beaten earnings expectations, yet the stock index has dropped nearly 7 percent.
The economic data, meanwhile, have been close to expectations. Friday's report on fourth-quarter GDP was actually better than what Wall Street predicted—though at a 3.7 percent drop, the numbers were hardly encouraging.
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But investors seem to be ignoring the data.
Instead, they've turned towards more of a trader's mentality, pushing the Dow back up when it approaches 8,000 and the S&P when it falls near 800. It's a trend that bucks the traditional long-term horizon most investors are supposed to take, but for many it's working.
"The idea of saying valuations are historically low so we're just going to buy and hold, that comes at great peril over the next year or two," says Lee Schultheis, founder and chief investment strategist at AIP Funds in Harrison, N.Y. "But also being overly bearish might also come at peril if the government's able to get ahead of the curve on the liquidity-credit issue. Once that gets solved equities will have the opportunity to advance."
Indeed, Boyle has moved nimbly in and out of positions in exchange-traded funds--these days mostly those with a bullish look on the market. She expects a run higher for the market to last into mid-February, when stocks will move lower and Boyle will quit or reverse her positions.
Dealing with the market's intense moodiness is all part of the job these days.
"People get hopeful and say, 'oh good,' and pile in, or they get depressed and they hit the support level," Boyle says. "It certainly makes for an interesting day every day."
A Better Mood—For Now
Even as the market was surrendering the gains it saw earlier in the week, there was plenty of enthusiasm for the market to go higher.
Ben Lichtenstein, a long-time bear who had been warning through much of 2008 about the pressures facing the market, reiterated on CNBC that he thinks stocks are in for a nice gain, with the S&P 500 flirting with the mid-900s if it breaks through 880.
"Everybody expected the worst to happen and it's slowly starting to fade out a little bit," he said. "I think the energy's only to the upside right now." See full comments in video.
Lichtenstein, of Tradersaudio.com, could be expected to follow technical levels.
But those with a traditional investors' horizon of 18 months and beyond are following suit, moving through positions in a way that would be discouraged in a normal market.
Some advisors are disturbed at the trend.
"If the time frame is 18 months to two years I'm very bullish. If the time frame is this afternoon your guess is as good as mine, but unfortunately that seems to be what people are looking at," says Randy Carver, president of Carver Financial Services/Raymond James in Mentor, Ohio. "I think the public is just kind of beat down, at the point of capitulation. People are just resigned to the fact that it's bad."
Some Companies Take a Hit
One case in point for the strange logic in trading is Caterpillar.
The Dow component and construction manufacturing behemoth would seem well poised for a good year considering President Obama's stress on infrastructure programs in his stimulus plan that the House recently passed.
Yet Caterpillar (NYSE: CAT) shares have been under intense pressure, dropping about 9 percent this week, as it announced 22,000 layoffs and Goldman Sachs added the company to its conviction sell list. Under other circumstances, such a stock might be considered a solid long-term hold, but with all the uncertainty in the economy it's being sold off aggressively.
"Everybody's afraid to trust the fundamentals. Everybody's afraid of what these numbers are going to mean," Boyle says. "You have this continued slew of layoffs as the earnings come out. Everybody's getting used to lowered expectations but at the same time they're throwing in 'we're laying off another 20,000 people.' That hurts the economy."
For protection against the whipsaw turns in the market while capitalizing on a long-term bullish philosophy, Carver is playing a battery of ETFs that follow individual sector movements as well as gains in the broad market.
He likes several of those in the iShares family: the S&P 500 Index (NASDAQ: IVV), the Russell Midcap Index (NASDAQ: IWR) and the S&P SmallCap 600 Index (NASDAQ: IJR), and outside that group, the Vanguard Total Stock Market (NASDAQ: VTI), which essentially is a play on everything, even Over The Counter companies not listed on the major exchanges.
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Such enthusiasm isn't universal, with a level of caution also prevalent that accompanies technical trading.
With all of the obstacles facing the market, regaining investor confidence will be critical before buy-and-hold positions become popular again.
"You need that confidence, that psychology to be restored," Schultheis says. "We need to know government's ahead of the curve, that they're not playing whack-a-mole, that we can now act and spend in a more normal fashion because we have a more reasonable expectation of what we see coming down the road. Then and only then will there be an opportunity for a sustained advance in equities."For more stories from CNBC, go to cnbc.com.