An Ideal Wall of Worry

 | Nov 11, 2011 | 5:02 PM EST
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After Italy scared the bull out of quite a few market players Wednesday, we rebounded sharply Thursday and Friday and recouped nearly all the losses.

Many were convinced Wednesday that we were on the verge of a major change in market character. When we quickly reversed as the European fears subsided, too many folks were caught by surprise and forced to cover shorts and try to find some long exposure. That caused a straight-up move and a big gap this morning with no notable profit taking all day.

Market players have been understandably bearish given the macro concerns, and have been struggling to keep up with the market ever since we exploded higher in October. It is difficult to consider all the issues and not expect that the market is going to have a day reckoning eventually.

The problem for many market players is that it this day of reckoning is obviously happening later rather than sooner, and they are going nuts as the market continues to run up without them as it ignores all the dire predictions.  

Perhaps it is the very fact that the negatives are so obvious that keeps us running. It is an ideal wall of worry, with glaring negatives and many market players underinvested and underperforming. When the market keeps going, they capitulate and do some buying, which drives us up further and causes more folks to add longs so they won't miss the party.

An additional frustration for many is that it is a market that is primarily driven by the indices. Individual stock picking isn't very rewarding right now. It is all about overall direction, and you might as well buy a leveraged exchange-traded fund rather than bother trying to find a stock that may outperform.

It is a much tougher market than it looks to be, and the likelihood of more news out of Europe next week is going to keep it that way. I'm still leaning bullish, but I'm concerned we will see another day like Wednesday soon. A little downside at this point would actually be a good thing from a trading standpoint.  

Have a great weekend. I'll see you on Monday.

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