Bears always sound smarter than bulls. Negativity and pessimism tend to sound more logical and compelling than optimism and positive thinking.
The arguments for a market correction at this point are very hard to refute. The indices and many stocks are extended, negative seasonality is at work, the Fed is ready to taper its bond-buying, valuations are extreme in many cases, and the Delta variant of COVID is hurting the economy. How can this market not correct very soon?
All the bulls seem to have going for them is momentum, positive price action, and some contrarian arguments. These optimistic goofballs are making money and should be punished for not listening to the intellectual pundits that know better. Right?
The problem with this market is that the indices have been pretty useless as a guide to making money this year. We started off with some great stock-picking and speculative action in the first couple of months of the year, and then big-caps continued to drive the indices higher while secondary stocks corrected deeply and even fell into bear markets.
In the last couple of weeks, the "Snake Bite Bottom" occurred, and small-caps, growth stocks, and speculative names have come roaring back while the indices have slowly continued to ramp higher.
The folks that have focused on rotational action and the shifting themes are the ones that have done best. Those that are pontificating about the irrationality of the market and are constantly predicting tops have lagged badly. Calling for a correction is an easy thing, but making money is the goal, and that sort of market timing doesn't help.
The market is entering one of the slowest times of the year right now, which comes to an end when third-quarter earnings hit in mid-October. It seems to make sense to look for softness in the indices. The problem is that there has been great trading action outside the indices and the big-caps. That is what you should be looking at to measure the health of this market.
When the speculative trading dries up, growth stocks pull back, and small-caps consolidate, that will be the time to be bearish. Most meaningful market corrections occur on very poor market breadth. Stocks move in a correlated fashion, and there are few places to hide. That has not been the case with this market recently. Things can change very fast, but that is what we need to watch for.
Forget the predictions about market tops. Watch the action in individual stocks.
We have a quiet start Monday morning as traders shake off the holiday hangover.