This morning Real Money Pro's Doug Kass tweeted the following comment: "95% of pundits are price followers. Stated simply. Consensus views are rationalized by price action." Helene Meisler has also made a similar comment, saying: "nothing like price to change sentiment."
They are both correct. It is unquestionable that positive price action tends to increase the level of bullishness, but does that mean that it is the wrong response? Should we become more negative as price increases? Is that a more logical response?
The answer to that depends on momentum. If there is strong momentum in the market, then the right response to positive price action is to expect more. That has been particularly true when we have these V-shaped moves. If you become more bullish into the positive price action following the Brexit vote you had the correct response. It was the folks that tried to fight the surge in bullishness that underperformed badly.
Obviously, the crowd of bullish investors will be wrong at the top but there are long periods of time when positive action produces more positive action. Stocks tend to run up or down much further than most people seem to think is reasonable.
The S&P 500 hit new intraday highs this afternoon. Those folks that became more bullish on Friday are on the right side of this market.
Acacia Communications (ACIA) , which I highlighted in my column this weekend as one of my top picks, is running up strongly today. My Stock of the Week, Fabrinet (FN) , is also moving over the downtrend line and is producing a "pocket pivot" buy signal.