I really don’t enjoy winter. I’ve always thought it would be nice to live someplace where it stays warm all year. I’m a proponent of Global Warming. It can’t occur too fast for me. Unfortunately fate seems to have conspired instead to make certain that I spend much of my life in some of the world’s colder climes. About this time each year I begin to wonder if warmer weather will ever return. Of course, that is usually about the time the days start getting noticeably longer and the big piles of snow start disappearing from parking lots.

Two months into the year, 2006 is proving frustrating to investors and professional money managers alike. The first 10 days of the year showed great promise as stocks surged and provided hope that the next major bull market rally was beginning. Unfortunately, the advance stalled and the markets have been unable to make any headway since. Because Janaury turned out well, the lack of follow-through in February has many investor extremely worried. In fact, many might be wondering if the markets will ever advance again.

Below is a chart I think will provide a clearer picture of what is occurring. This chart shows the daily price movements of the Nasdaq since the beginning of the year. Each vertical black line represents the daily trading range of the Nasdaq. On the left side of each black bar, you can see a small, horizontal hash mark. That marks the open point for trading on the Nasdaq that day. There is a similar hash mark on the right side that marks the closing point of the day’s trading.

On the left side of the chart you can easily see how the Nasdaq began the year with a strong upward move that peaked in the second week. Since then, the Nasdaq has whipsawed almost daily, providing no real trading opportunities. I added a red horizontal line that shows where the Nasdaq was at the end of January. You can see that February really ended right where it began. The blue line is just an arbitrary illustration of where the index seemed to cluster during the early part of February. It is about 2% lower than the red line. Since the middle of January, most of the the daily trading has stayed between those levels.

Over the past year, I’ve written several times that there are two market factors that must be present to make money in any investment. First are trends. Because of the wide range of short funds currtently available, it doesn’t really matter whether that trend is up or down. Whether one is trading short-term, intermediate, or long-term cycles, some sustained directionality is necessary. The second thing needed is volatility. Everyone knows that the secret to investing is to buy low and sell high, or vice versa. If the difference between the low and the high is only a percent or two, no real profit opportunity exists for ordinary investors.

Fortunately, volatility and trends are two things the investment markets usually have in abundance. The action of the past month is really an abberation and is not likely to persist much longer. How do I know this? Let’s consider the activity of the past couple of months in a longer context. The chart below is just like the one above only it includes a year’s worth of data. I’ve again added the same red and blue lines to Febaruary’s market activity. From this perspective, it is fairly easy to see that after consolidative, sideways periods like we’ve just experienced, the market generally follows with a more sustained move in one direction or another. In 2005 we experienced a similar sideways period in June, only to see stocks soar in July. Another similar pattern occurred in December, followed by the nice rally we mentioned in early January.

So just like I know that spring is just around the corner, I also know that major market indices like the Nasdaq, the Dow, and the S&P 500 are just about to make a bigger move. I also know that it is way too early to panic. Whether that next move is upward or down does not matter much for those who trade the ETFs that track major indices like Spiders, Diamonds or Qs. But for the sake of the U.S. economy, I would like to see a nice bull rally that persists for several months.

Finally, let me share a story. Years ago I used to help options expert Ken Trester with his trading seminars. He began each seminar by asking to borrow a $100 bill from one of the attendees. Then he would proceed to tear the bill into tiny pieces in front of the class. Audible gasps and looks of horror were typical reactions–not just from the person who contributed the bill, but also from other attendees watching. Afterward, he would talk to the group about how they felt when they watched that $100 bill being destroyed. Many admitted that it was difficult to watch, even though the money belonged to someone else. After the discussion, he would replace the bill that was ruined. But he was careful to explain that to be successful options traders, each attendee needed to be prepared to experience much greater losses during the process. He also told attendees that if it was emotionally wrenching experience for them to lose money, they probably needed to be buying Certificates of Deposits rather than investing in the financial markets.

A lot of investors spend a good portion of each day watching the value of their account and fretting about the fluctuating total. I hear them say things like “I lost $20,000 today.” Or, “I made $45,000 this month.” While I understand that financial security is important, I must admit I feel a little sorry for people who allow their daily mood or even their self worth to be dictated by a number on a piece of paper or on a computer screen. If I’ve offended some of you, I’m sorry. But if I’ve described you, then you need to think about making changes in the way you deal with your investments.

Quit worrying about the markets for a little while. There are more enjoyable things you could be doing–after all, spring is just around the corner. And the markets will still be here next week.