Crying doesn't help anything. Try your luck with violent mood swings. --Anonymous
Despite talk of fundamentals such as the economy, valuation and central bank activity, success in navigating this market depends on understanding the psychological. The market hasn't cared about negative arguments recently, and it has been very costly to worry about them.
The negative fundamental arguments are no great mystery. They have been out there for a very long time, but much to the consternation of the bears, the market just rolls over them and keeps on running. Sooner or later, market players will find a reason to sell, and the headline writers will attribute the action to a fundamental matter or some news event, but the truth will be that investors simply underwent a mood change.
If you are going to try to call a top in this market, what you are really trying to do is to predict when obvious negatives will be used to justify a mood swing. The fundamental news doesn't change suddenly. What changes is that market players decide that they should lock in profits and be a bit more defensive. Once that starts, it feeds on itself and a correction kicks in.
The mistake the bears have been making for months is thinking that they can time when the negative arguments matter. As the old saying goes, bad news doesn't matter until it matters -- which is why I constantly suggest not being bearish until there is some price weakness.
We have a little weakness in the early going and we'll see if it develops into something more dramatic. But don't forget that strong markets tend to be very sticky to the upside, they generally don't just roll over and go straight down. There will almost always be very active dip-buying when we have just hit new highs and those dip buyers don't give up without a fight. Too many folks are frustrated at missing out on the upside and they are determined to add long exposure on weakness so that it doesn't happen again.
I've been dealing with this highly extended market that refuses to pullback by staying reactionary and keeping one finger on the eject button. I'm finding it more and more difficult to find new buys, which is increasing my cash level, but I'm not going to be negative until there is some real price weakness first.
A good bout of selling would certainly make for a healthier market that can work even higher, but the market seems to be on a mission lately to make sure that anyone trying to employ common sense is going to feel out of step.
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