Stunned by Today's Gains

 | Oct 27, 2011 | 4:16 PM EDT  | Comments
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Looking at the action today, the only conclusion that you can draw is that no one saw this coming. Even most of the honest bulls will admit they are stunned by the magnitude of the gains today. The fact that we didn't even dip and were hitting new highs for the day in the last hour of trading is proof that there was very poor positioning and massive scrambling to try to get in tune with this strength. We did see some mild selling in the last 30 minutes of trading, but it was hardly a blip giving how much we ran intraday.

Some might argue that window dressing helped to accentuate the upside action, but, in retrospect, the idea of a 'sell the news' reaction to European news on Tuesday may have been a bit too obvious. What really surprised the market was that no one expected the Greek bailout news to hit overnight. It looked like the endless debt negotiations were set to continue for a few more weeks when trading ended Wednesday. Expectations had already declined just when the news hit this morning and that lit the fire.

Obviously at this point, the market is extended and badly in need of some consolidation but that has been the situation for a while now. The dilemma is that the more one-sided the action has been, the bigger supply of folks who are missing out and will act as underlying support. Markets this strong produce legions of potential dip buyers.

The folks who are underinvested at this point are hoping and praying for pullbacks and many of them will jump in on the most minor pullbacks. There is a tremendous amount of anxiety about underperformance now and no shortage of folks who are underperforming.

If you aren't holding much long inventory at this point and are feeling left out, there aren't a lot of easy solutions other than some patience. Virtually all entries are chases at this point, which can work and have worked recently, but it is very challenging if you are disciplined about buying extended stocks.

The good news is that we definitely have an uptrend now, and better charts will start to develop as the market digests this move. The trick is that the market just never seems to consolidate very much before it takes off again, which is major problem if you are selective.

Have a good evening. I'll see you tomorrow.

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