Up is not an easy direction. It defies gravity, both cultural and magnetic. --Mike Abrashoff
The market has drifted slowly upward for a couple of weeks. While the indices are still producing gains, the action under the surface has been choppy and uneven. Most notably, we are seeing more intraday reversals as strength is sold more aggressively.
Even the bulls are growing fatigued and many are looking for a pullback. Of course, the great irony of the stock market is that the bigger the group of people anticipating a particular move, the less likely it is to occur since they have already acted to some degree.
I suspect that a big reason behind this steady uptrend is the many underinvested bulls that keep inching in out of frustration as the market keeps pushing higher each day. They are growing more hesitant to chase, but they still provide great support on dips.
Markets making new highs have a tendency to stay sticky to the upside; they don't just fall apart and go straight down suddenly after hitting a new high. But I'm finding it increasingly difficult to make progress on the upside. There are still good stocks like Netflix (NFLX), LinkedIn (LNKD) and Priceline (PCLN) chugging along, but I'm seeing more reversals and, for the first time in a while, I was looking at potential short setups.
The main catalyst for weakness this morning is a report that the economy in the eurozone contracted 0.6% in the fourth quarter. The bears say it's only a matter of time before the negatives start to matter, and you have to wonder if this is the first sign that the focus is shifting. The political debate over spending cuts in the U.S. is going to heat up very quickly as well, and that will provide the bears with more ammunition.
The good news is Warren Buffett is acquiring Heinz (HNZ), which will give the bulls some good arguments for saying that the market still is not expensive. It certainly helps sentiment when the Oracle of Omaha is willing to put big money into the market at this point.
I've been battling my inclination to be more bearish, but the action in many individual stocks is pushing me in that direction. It is still too early to call a market top, but I'm being cautious and keeping things tight.