The market is now essentially back to break even for the year.
I continue to believe we will see sideways action for at least another month or 2 which fits into the pattern observed after the initial thrust of a new cyclical bull market . During this phase we could see the market go as far as making a marginal new 52 week high but it probably wouldn't go much further than that before heading back down.
On Feb 5th the day the market hit its most recent low, I criticized a certain commentator on realmoney.com who posted the following comment "Assume the worst. The safest play here is to look for more downside". Well, so much for that “safe” play. Now this same guy says "The Action Has Been Impressive. We've broken overhead resistance without difficulty, and the pullbacks have been mild". If the market starts heading down again you can be sure this clown will flip back to bear mode. I'm quite sure the average fast money, weak handed momo trader like this guy is still bearish deep down even if they play the long side which means they will dump longs at the first hint of weakness. At bull market tops LT and ST market players have fully embraced the long side looking to buy on dips. Right now the LT investor is still skeptical as you can tell by the flows into equity funds during the past 12 months. Traders on the other hand have for the most part been skeptical as well but sometimes have shown bouts of excessive bullishness like in June of 2009 and in late 2009 but such bullishness got rapidly extinguished on just a modest pullback which indicates as I suggested that deep down inside they don't really believe in this bull market. All of this suggests the market is nowhere close to hitting a major peak.
From a ST perspective, right now we are kind of stuck in the middle. The market is back to ST overbought but sentiment indicators are neutral. This makes the market rather edgeless here for index traders which is why (I know I sound like a broken record) I continue to just focus on individual names. This benign, sideways environment is perfect for stock picking. You might be thinking "why talk about the general market if you are focusing on individual names so much?" It's because I realize that stocks don't exist in a vacuum. Although you may find names that are fairly non-correlated to the market, that can only last for so long if the market goes back into full bear mode. Stock picking without any regards to general market conditions is like a gardener who only focuses on the progress of his plants without any regards to changes in the general climate. I don't care how well you can pick your plants and mix your fertilizer...when summer changes to winter if you don't harvest them before hand they will all be dead.
The next phase of the bull market will likely occur when the market starts to sniff steady job growth. Don't be surprised if this Friday's non-farm number turns out to be disappointing due to unusually bad weather in February.
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