The Bulls Have the Edge

 | Dec 20, 2011 | 4:36 PM EST
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Conditions were developing well, and the big spike reversal had to happen eventually, but the great challenge is in the timing. What makes it even more difficult is that this market has had a tendency toward these very energetic reversals just when it looked its worst. The market looked downright sick yesterday, and even finished at the lows of the day. That assured even greater frustration when we gapped up and ran all day.

The pattern of the market over the last couple of years is a big reversal on light volume that saves us from the brink of disaster, then we continue to run straight up on even lighter volume for a while as poorly positioned market player try to play catch up.

Again, I think conditions are good for V-ish action that drives everyone crazy. The bears get squeezed, the underinvested bulls can't get long enough, and the dip buyers never even see any decent dips.

Look what happened in the market after the big intraday reversal Oct. 4. We were up five of the next six days afterward, and after a brief consolidation we ran up another 6%. Anyone who tried to fight that bounce once it started was crushed.

Seeing that we are at the end of the year and have many underinvested market players in need of relative performance, I think we will see some more of this lopsided action. Of course, we could always be hit by negative news out of Europe, but with the holidays upon us, the news flow should slow.

What I find most challenging in this environment is that the technical setups just aren't that great. Volume was up only slightly over yesterday, which is not convincing, but low-volume, even declining-volume, rallies have been the trend and I'm not going to give it too much weight.

The bulls have an edge now, and we'll see what they can do with it.

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

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