Ever hear the expression "a watched pot never boils"? Well, that's kind of what we got here with the market. Coming into this week a lot of people knew the market got very overbought and so these people tried to game the pullback that just "had to" happen. At the same time there are trapped bears from 2-3 weeks ago who I'm sure are waiting for some sort of a dip to at least cut losses. What tends to happen in these situations is sideways or slightly down action for a few days followed by a pop higher which is what indeed did happen. Now here we are back at the 52 week high for the SPX. As mentioned before, the growth sensitive indices such as the NASDAQ and RUT have already made new 52 week highs a few days prior and the SPX was simply dragging its lazy ass to catch up.
Browsing the blogs I can still detect quite a bit of pain and despair from retail bears tonight. There's still quite a few who haven't thrown in the towel after getting caught short a few weeks back. They are all second guessing themselves here. Some are hoping for the "double top" possibility others feel such a thing happening would be too obvious and we need to make new highs to "squeeze out all the bears" before the market can tank again (this is what I think will happen). But what these trapped bears must realize is that it's THEM who are part of those same bears that need to be squeezed!
Some of the die hards are questioning their faith in the bear case all together and swear they will be more flexible towards the long side. I've seen this happen time and time again over the past 12 months when these guys get burned. All it takes is a drop of 1% for these jokers to run for the hills and go back to permabearing....akin to an abusive spouse who swears he'll never raise a hand again but then gets drunk and angry again the next week. These jokers are in the bargaining stage of grief. Who are they kidding? Their deep rooted bearish biases will never allow them to play the long side successfully because they have near zero conviction towards it.
Around mid November I made a post titled "a watched pot never boils" when the SPX was around 1110. The market feels very similar to that period right now because like then, the market got overbought, bears got trapped and a lot of people where trying to game the pullback. What ended up happening is that the market still found a way to grind higher for another 40 points despite signs of complacency. Eventually though, about 2 months later after torturing most bears into submission, the market peaked and those gains were given up and then some as we hit 1045 in early February. I don't think it will take 2 months to top like before but I think at least 2-3 weeks of further marginal upside or sideways action is in store before enough bears have been shaken out and enough weak bulls have been sucked in before the next correction begins.
Again, this is just a guess on my part. Who knows, I might even consider playing a small downside spec trade if and only if the risk/reward is heavily skewed towards downside. But I will never go net short in a bull market even if I feel strong about a correction comming. I've learned that in bull markets you will keep yourself out of a lot of trouble if you resist going net short to try and profit from a minor correction. It's OK to raise cash or hedge a bit when things gets a bit frothy but don't overdo it or you will regret it one day. Big money is made riding big trends and surprises in a bull market tend to be on the upside which can and will make you look foolish eventually if you try to game all the minor corrections. This is why in a bull market, buy and hold is the best strategy...you will have a hard time beating it trust me.
The bottom line is that I still believe we are in a consolidation phase here and so I don't think the market is going to run away on the upside even though marginal new highs is likely. I may consider a small downside bet in the coming weeks but LT I remain bullish.
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