Such is the state of life, that none are happy but by the anticipation of change: the change itself is nothing; when we have made it, the next wish is to change again. --Samuel Johnson
As we kick off a new week the big question for the market is whether or not negatives might finally start to matter. For weeks now the bears have been muttering about all the flaws in this market that never seems to rest and have been completely ignored. Everyone keeps anticipating a change in market behavior, but it never seems to occur.
Maybe the list of negatives is just too obvious. It includes high oil prices, a generally weak earnings season, poor underlying technical support and continued sovereign debt issues and a recession in Europe.
Europe is impacting us this morning as the G20 meeting over the weekend put additional pressure on Germany to provide more rescue funds for the EU. In addition, German voters are deeply unhappy with the Greek bailout.
None of these bearish arguments are very surprising. They have been out there for quite some time, but the indices have had exceptionally strong underlying support and refuses to roll over. Buying the dips has worked so well for so long that it reflexive at this point. In fact, the bulls seem to be hoping that we have a little weakness so that they will have more chances to buy pullbacks.
There is no question about the upside momentum in this market, but the lack of volume and energy has made for a very odd environment. We have a market hitting multiple-year highs, yet the level of interest is tepid at best and even the bulls aren't all that trusting. No one would be very surprised at all if a correction kicked in, but that may be a big part of the reason it isn't occurring.
The key to navigating this market has been to respect the price action above all else. When the negatives start to matter and the price action shifts then we need to react, but trying to anticipate when the market is going to care about the bearish arguments has been impossible and isn't any becoming any easier.
It may sound unsophisticated and overly simplistic, but to navigate this market the best thing we can do is to not fight the trend. It is extremely tempting to try to anticipate a major turn, but it better to wait for it to actually happen.
We have a poor start on the way that will give us a good test of the dip buyers. When the dip buyers lose their zeal, that is when the character of the market will change. A failed bounce or two is going to be a signal to be more defensive, but betting against these dip buyers has not been easy.
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