Today started what looked to have the makings for a bear capitulation but instead gains were wiped out and the market closed essentially flat for the day. The last time we got a reversal day I mentioned how bears got so euphoric...as if the market had crashed. I speculated it would end up being a bear trap and I was right. This time around I noticed a similar sense of euphoria...and anger. I noticed a post on the yahoo SPY message board that went something like "take that you f$%king bastard PPT". Egos and wallets have been badly damaged and these frustrations are manifesting themselves with rage. This is a losing battle and such a waste of energy not to mention a sure way to financial ruin. The 5 stages of grief are 1) denial 2) anger 3) bargaining 4) depression and 5) acceptance. I suspect for the bulk of the retail herd who has been bearish, they are at the anger stage. Some are at the bargaining stage whereby they promise to "better listen" to the market but I suspect their bearish bias will lead them into stage 4 eventually and then stage 5. A lot of traders/investors skip stage 3 all together and go right to 4 and 5. And a lot of traders remain is stage 2 permanently.
Arguing with the market, swearing at your screen, blaming the PPT or whoever for your losses isn’t going to solve anything. If the market is so "rigged" or "manipulated" and if people are so convinced the "PPT" is going to do whatever it takes to keep the market rising, why for the life of me, don't these conspiracy believers act on this by going long the market and make money? Nope. They only want to make money on their bearish beliefs because to join the long side would mean to admit that they had it wrong and/or it would be "unintelligent" to do such a thing.
The sooner you check your ego at the door the better. The market will humble you very quickly if you equate your intelligence with your ability to make money in the market. Sometimes the lunatics run the asylm like they did in 1999 and early 2000 and throughout the many bear market rallies afterwards. In fact, you can call 2003-2007 one huge bear market rally. There were several bears who were correct about the shakey foundaations of the economy during that run and presented several well researched and logical arguements. They were dead right....and they were dead broke before they had a chance to profit from it because they started shorting the market in 2004 and 2005 which was too early. They didn't listen to the market which was saying "not yet".
This doesn't mean you shouldn't have an opinion and just blindly follow the direction of the market, but it does mean that you aren't as good as you think you are and even if your opinion is right, the market may not just realize it yet and it's better for you to either step aside and wait for signs that the market is starting to confirm your belief or better yet, go with the flow and hop along for the ride. What's so bad about making money on a "bs rally"? There is no bullshit about the money you lose betting against it. This is going to be hard lesson many of the newbie bears will learn or I should say are learning already.
Anyhow, back to the markets...I mentioned the tendency for a post-fed day hangover, which typically erases any gains made on fed day very shortly afterwards. That means it's likely that we could see the market drop by at least 1.5% from current levels by the end of tomorrow or Monday. But I gotta say, there is just as good a chance that the market makes that capitulatory upside surge to about 890-900 cleaning out all of the bag holding bears still in the market. The fact that the market did not punch through the 875 resistance level and hold is giving comfort to the bears. The next assault might very well stick though.
Sentiment as measured by II and AAII shows once again bears outnumbering bulls. There is certainly chronic bearishness out there amongst investors. I guess this is what you can expect after going through such a brutal series of declines for several months. Thus, given the chronic bearishness out there, no matter how much of a pullback we get it is likely that the rally has not seen it's highest point yet.
I continue to just watch from the sidelines for the moment...
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