Everyone Agrees

 | Nov 16, 2012 | 7:33 AM EST  | Comments
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Whenever you find yourself on the side of the majority, it is time to pause and reflect. -- Mark Twain

For over a week now the headlines each day have been about stocks being under pressure on worries about the eurozone debt crisis and the fiscal cliff. Nothing has changed this morning as stocks struggle once again on the same concerns.

What makes this market particularly difficult is that everyone seems to agree. Everyone knows what the negatives are, everyone knows the market is technically oversold and everyone is looking for some sort of relief bounce to eventually occur.

Of course, when everyone agrees that the market should do something it usually does nice job of causing great frustration by doing just the opposite.  What adds to the difficulty is that we know that the contrary action of the market won't last forever. Sooner or later a big bounce will kick in and it will likely feed on itself as the folks on the sidelines finally pile in and try to catch a ride.

So, once again the big question we must ponder is whether today is the day that the bounce occurs? It seems like a fairly good bet, but it has been a pretty good bet all week and it hasn't worked.

It is very easy to grow tired and frustrated with this market. There just isn't much we can do while we wait for some sort of countertrend action. We are too oversold to be aggressive with shorts, but we definitely aren't seeing any good bounce action either. The contrarians have been active trying to anticipate a turn, but they have been killed with their premature accumulation.

The way to deal with this market is patience and vigilance. That isn't very entertaining, but the way to make money is to wait for some signs of action and then rush in as it develops further.  So far nothing much at all has developed and if you are too anxious to move it hasn't worked. But at some point, a bounce will become self-fulfilling and will gain some momentum. If you have the right trading vehicles, use good money management and are aggressive, you should be able to catch a move.

The important thing when focusing on bounce action is that you treat it as a trade and not a belief that a major market turn has occurred. You can bet that the minute we bounce, many pundits will be crowing about how the worst is over and that it is smooth sailing to the upside now. Don't buy it. A oversold bounce might be the first step in putting in a low, but it will take more than that to change the character of this market.

It is Friday and we are heading into Thanksgiving week, so conditions are good for some short covering that may help to finally deliver some upside. I'm leaning a little long here mainly because we closed a little better on Thursday. We have had a series of poor closes lately and I viewed a late uptick as a slight positive.

We'll see how things develop, but given how often the bounce buyers have been disappointed lately they are likely to be hesitant to rush in and be burned yet again. But it is skepticism that is the ingredient that is most likely to finally give us that bounce that so many are looking for.

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