The patterns in this market have been amazingly consistent for the last couple of years. Today we are back to the familiar "hated rally," which is frustrating underinvested bulls that never had the opportunity to reload.
Virtually any money-management scheme would have stopped you out of many positions when the market fell apart last week and then on Monday and Tuesday of this week. Typically, a trader would then wait for some consolidation before adding back positions, and if you are particularly bearish, you might even short an oversold bounce.
The challenge of this market is that we just go straight back up and there is never much of an opportunity to rebuild long positions. If you want in, the only alternative is to chase things that don't have particularly attractive charts. A stock that breaks a trendline or a support level on big volume like on Tuesday isn't an attractive buy on a low-volume bounce, but that is precisely the sort of stock that keeps on running.
The net effect is that disciplined traders who paid attention to the charts and took defensive steps are badly out of position when these V-shaped moves again. They become frustrated and start chasing entries, which makes the V-shaped move even more V-ish.
That is why those rallies always seem so joyless. Too many traders feel like they are missing out or should be doing better, and it is even worse when the nontrading clowns in the media celebrate the great action.
I keep wondering how long this pattern of market behavior can continue, and the answer seems to be much longer than most people think is possible. Even if you don't embrace this action, at least be hesitant about fighting it.
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