Still not over

I was away most of the day and missed the action until the last half hour. Looking at the intra day chart, market action suggests today was a profit taking type day. The market was basically in the red from the get go and never saw green. Does that indicate a buying exhaustion? Nope. Rather it indicates nervous longs booking profits. Tonight the futures are down 1% on stress test news that BOA will need to raise about $35 Billion in capital. I don't know how much of this can be done by converting their government issued preferred shares to common, nor do I care because I believe the market already has discounted the stress test results. The methodologies in determining the results were released last week and so the market had plenty of time to digest this and we have climbed higher since then.

Although I have seen bear capitulation I still honestly don't think it has been complete. If I was a trapped bear I would be hoping that the stress test results would bail me out. If the market can shrug off the stress test results without much damage then any remaining bears will just throw up their hands and say "that's it.... there’s nothing that can stop this market now.... I’m atta here". At the same time anyone who has been waiting on the sideline in agony for that big pullback that never comes will also do the same and say "I've been waiting and waiting and waiting and every little dip gets bought. But now that the stress test results are out of the way, the coast is clear and so I'm going to jump in on the next little dip before I miss the next big move".

And that folks is how a top gets made.... when the last marginal buyer is exhausted. Bears who have been banging their heads against the wall wondering how this market can be so strong don't get this. They didn't realize that because the problems of the economy became so well advertised, those who wanted to sell/short already did so and so there was an exhaustion of sellers. The only way the market would have tanked further is if there was an outright collapse, which forced even the strongest of longs to capitulate. Because that didn't happen we got the mother of all short squeezes when the newsflow started to indicate that the end of world wasn't nigh.

Bear dogma blinded skeptics to the notion that in the short run the stock market is a voting machine and by short run that can mean up to several months...even years. I find that bears in general think too highly of their own intelligence. Guys like Schiff talk in a mannerism that suggests the market should do what he thinks it should do because he's knows he's right and so when the market goes the other way I'm quite sure these bears throw fits of rage like I've seen a lot these days.

Anyhow...back to markets...Don't get me wrong here...I know the market is quite overbought and I there has been quite a bit of bear capituation to warrent the end of the rally...but my gut says "not yet" even if that means further declines first. If I'm wrong and the market rolls over into hell.... fine by me. I'll just try my best to ride that train even if that means missing the top. The obsession for traders trying to catch this top is an ego thing and it has cost them dearly. People tend to feel "smarter" when they buy/short on a counter trend move because they feel like they are getting a "bargain". That strategy only works well when the wind is at your back i.e. the trend is in your favor and when the trend is not fully embraced by everyone. I often try to catch tops and bottoms myself, but I don't attempt to do so unless the market is giving me signs to do so. It's typical for traders/investors to make decisions with the following line of thinking "I'm going to go short/long right here because the market shouldn't be this level". Thinking like this can lead you into a world of hurt like so many have already experienced. BEWARE TELLING THE MARKET WHAT TO DO. If you do, be prepared for the market to slam you in the head with a shovel.

A comment regarding the bearish agruments out there....I agree with a lot about what they say the main one being that throwing more debt at a problem that began due to too much debt is not the right solution....but as history has shown, it can (and I stress the word can) alleviate the problem at least temporary and by that I mean up to several years...yes the problems will be worse later on but in the meantime the "false prosperity" that is created can be quite enduring and lucrative....or destructive if you bet against it. Any bear that overstayed his welcome from the 2000-2002 bear got crushed by the 5-year bull market that followed.