Adapt or Be Crushed

 | Feb 27, 2013 | 1:45 PM EST
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Since the market low in March 2009, one of most consistent tendencies of the market has been to bounce and keep going. In the old days you could actually fade an oversold bounce aggressively, but now you are likely to be crushed if you have any doubts about the market's ability to turn back up and keep on running.

I suspect that this change in behavior has something to do with high levels of liquidity and more aggressive computerized trading. It is obvious that normal human emotions don't tend to swing to the extent we see these days. We often hear that the market has no memory from day to day because the computers are programed that way.

After a breakdown like we've seen over the past week, the normal psychology would be a relief bounce that eventually runs out of steam as the bears reload shorts and trapped bulls unload positions. At some point, a bounce after a breakdown produces a logical exit point. But that thinking doesn't seem to apply to the market anymore.

I miss the days when the market better reflected human emotions, but we have little choice but to adapt to the new normal and that means embracing action that doesn't always make sense. If the pattern holds, this market will continue to trade up and I am going to give it room to do just that.

There is plenty of green, but these rallies never seem to produce much excitement. In fact, they seem to produce more frustration than celebration when we have this sort of movement. Of course, the cheerleaders on television automatically celebrate any positive action, but the truth about what is going on is being ignored.

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