If you took a poll Wednesday, you probably wouldn't have found many folks who expected the market to recover all of its losses immediately. In fact, it was interesting to see how quickly bearish sentiment developed. It was logical to expect some downside follow-through after the intraday reverse, but we typically don't see so many bears after just one day of poor action. Perhaps being deprived for so long caused so many bears to embrace the dark side so fast.
Now that we have roared back as if nothing happened at all, it seems painfully obvious that the dip-buyers weren't finished yet. They are about 23-0 for 2012, and the fact that suddenly everyone on CNBC was a growling grizzly only helped to set the stage for the quick snapback.
It's easy to see this sort of thing in the rearview mirror, but it confirms what I've been writing recently: that the dip-buyers are not going to go gently into that good night. They have been rewarded so consistently and so often that it is automatic behavior.
Eventually they will be caught by surprise and we'll see real ugliness, but when bearishness goes from zero to 60 in the course of one day, the dynamics favor a bounce.
Don't forget that the high-frequency trading algorithms love to torture bears leaning the wrong way. I suspect the most profitable trading program out there is one that keeps buying very extended markets, especially when the bears are very vocal that a correction is due at any moment.
My game plan has been to stay with the quick long trades, and that is working well. I'm not shy about selling down the things that work, but it is challenging to redeploy cash. I'm not inclined to do much chasing here, although there is plenty of squeeze action taking place.
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