Still stuck in nowhere

I'm a big believer in market action. To me there’s a big difference between the following

a) A market advance of 10% in a slow but relentless fashion with daily action often characterized by weak or modest opens closing strong by the end of the day.

b) A market advance of a 10% characterized by large volatility gaping up and running on most of the up days.

To your run of the mill market technician, he makes no distinction between advance a) or b) because both will break above a certain trendline, moving average, resistance level, ect just the same. However, a) is indicative of sustainable, bull market behavior while b) is indicative of a rally prone to failure. b) is the type of advance that we have been seeing with any rally attempts since the market peaked in April and I’ve been harping about such “poor action”.

Mind you, we haven't seen "legitimate" bear market action either because the downside is also often done erratically via gap down action and the market is responding well to the upside on oversold conditions. In bear markets oversold conditions are either ignored or get cleared quickly before resuming the bear course (similar to how bull markets act with overbought conditions) and that hasn't been happening.

So, what do we have here then? We have a market that is trendless. Neither bull nor bear market behavior is present although at times the action does show traces of both. I called for a multi-month consolidation phase to the bull market coming into 2010 and it looks as if this is indeed occurring. I'm keeping an open mind as to a bearish resolution but I have my doubts. Although leading indicators have been pointing south which warrants caution in the ST/IT, the ingrained pessimism/doubts of market participants that I've noted over a year are still there which suggests market expectations are still low from a longer term perspective and with the market not confirming such pessimism (bears haven't done that much damage since the market peaked in April considering the advance that preceded it) my experience shows a bullish resolution is ultimately in the cards which suggests that any economic softness that comes our way won't result in the dreaded double dip.

In my view, the market lacks convictions because on one hand, earnings and interest rate trends are very favorable for equities but on the other hand, signs of a slowdown accompanied by still stubbornly high unemployment, soft housing and sovereign credit strains are keeping the upside in check and since there is no hard evidence of these concerns impacting earnings in a meaningful way, the downside is being kept in check as well. Under these conditions, a trading range mentality is most appropriate although it can be quite tricky to profit. A safer, boring approach would be to just sit out and wait for signs of a resolution to this range. I suspect there will be at least 1 more scare in the market which drives us back to towards the July lows or worse but not a lot worse.

You can squawk all you want about negative fundamentals that bears keep pounding the table about, but when the LT sentiment backdrop is like it is now it suggests that somehow, someway the bears aren't going to win on the grander scale of things...at least not for a while. Look, I don't disagree with some of the things the bears point out it's just that if they do turn out to be right it probably won't be before the market rises a lot further first. The 2003-2007 bull market is a perfect example. Bears were correct in 2002 by saying there was unfinished business on the downside but they got humiliated and taken to the cleaners for 5 years before being proved right and by then they were broke. The prime example is Prechter who has been LT bearish for more than 2 decades following a completely idiotic theory called "elliot waves". Anyone following him since his inception would have been dead broke come 2007 before this broken clock finally got it right. Thank God for the lemmings who believe in bullshit like elliot waves. Without such lemmings the market would be a harder place to make a living.

Either way, no matter which way the market breaks I'm going to do my best to be on the right side of it. You see, I couldn't give a flying fuck if everything I've been talking about turns out to be dead wrong but I was quick enough to adjust and profit going the other way. Profiting is all the matters. Stubbornly defending money losing positions for the sake of protecting the ego is not what I do. I have no ego to protect here. I have no bias. I have no "vendetta" against the market. I don't project my personal circumstances/feelings on my stock market outlook. I don't invest based on how I think the market ought to act like. Ok....I lied. I can’t say that I adhere to the above 100%. My humanity prevents me from achieving such pure objectivity although I do try my best to achieve such as humanly possible.

Human nature causes us to view the markets and the world for that matter through a glass window capable of being tinted in various colours. It seems to me that for most people that window is tinted black. When it comes to trading/investing your window must be wiped clean every day to a crystal clear shine....better yet smash that window! In The Matrix there's a scene near the end when Neo lets go of his inhibitions and finally sees the Matrix for what it truly is. At that point he is able to master it.