The indicates there is a sufficient "wall of worry" for the market to climb higher eventually (and I say eventually because I think we go down again tommorow...at least initially).
Obviously, one needs to take into account any news related events. For example a gap down due to a nuclear bomb wiping out half the plannet would likely not be indicative of normal profit taking.
Although there is definatley a rise in bullishness over the past 3 weeks there is still IMO, plenty of cautiousness out there. Mutual fund investors have been selling into the rally since it started about 4 weeks ago. The consensus view from the financial pundits is that they are encouraged by the rally and the latest upticks in some of the economic data, but before they are convinced it is anything but a bear market bounce, they want to see more upticks in the data and they want to see the market not fall apart during this earnings season for which everyone expects will be bad.
Therefore, if in fact we do see more signs of economic stability and the markts hold up Ok during earnings season, then we may get what I believe is the 3rd stage of the bear market rally - panick. This is when the underinvested people are convinced that the rally may be real and can't afford to miss the boat. This is also the point where most bears are too affraid to top tick the rally. Obviously, none of this has to happen and we can fall apart right now if we get some really bad news given how overbought we are on an intermediate term basis. This is why anyone who attempts to play the long side here just do with limited capital therefore, option plays in these types of senarios work well. In addition, I find that most of my successful option trades have been when I'm going with the trend.
Although there is definatley a rise in bullishness over the past 3 weeks there is still IMO, plenty of cautiousness out there. Mutual fund investors have been selling into the rally since it started about 4 weeks ago. The consensus view from the financial pundits is that they are encouraged by the rally and the latest upticks in some of the economic data, but before they are convinced it is anything but a bear market bounce, they want to see more upticks in the data and they want to see the market not fall apart during this earnings season for which everyone expects will be bad.
Therefore, if in fact we do see more signs of economic stability and the markts hold up Ok during earnings season, then we may get what I believe is the 3rd stage of the bear market rally - panick. This is when the underinvested people are convinced that the rally may be real and can't afford to miss the boat. This is also the point where most bears are too affraid to top tick the rally. Obviously, none of this has to happen and we can fall apart right now if we get some really bad news given how overbought we are on an intermediate term basis. This is why anyone who attempts to play the long side here just do with limited capital therefore, option plays in these types of senarios work well. In addition, I find that most of my successful option trades have been when I'm going with the trend.
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