Will this turn out to be like September 2010 or September 2007?

First of all, the lemming bears are at it again. The put/call ratiowas sky high this morning in the face of market strength. This time however, the market is not ST oversold so the less of chance of them being squeezed  like last week but it still remains a decent probability...at the very least it suggests you stay away from the short side until you see them back off.

When things seem utterly hopeless and the bears pile all it takes is some marginal good news to rip them a new one and that's what happened and may continue to happen. It's a game of chicken though, because the fundamentals are in fact deteriorating which warrants being bearish but Mr. Market rarely likes company.  Have you noticed that some of the market leaders namely, Apple and Amazon have made new highs? Amazing. Having your market leaders lead is good sign for the bulls but is this the result of people simply "hiding" in these growth names?

So, there's talk now that Greece may end up getting the next tranche of bailout funds which would keep them afloat till the end of the year. That's probably why the market is ignoring the lemming downgrade of Italy by the new tough guys of the world  S&P. Italy is in bad shape? Gasp! Wow, S&P you are so forward looking and market savvy...nobody had any idea the PIIGS were in trouble! Ok, so if Greece does indeed get more bailout funds it could very well be the catalyst for the market to breakout higher simply because too many bears have been shorting the market. Unfortunately, European authorities are in denial and are ignoring the bond market which is saying that Greece is doomed to default. It appears they are throwing good money after bad and if Greece keeps struggling, which they likely will, the next time they come back to the through it would most likely be game over. You can sense that people are completely fed up with these bailouts. Merkel has taken a political beating because of it.

A lot of what's going on reminds me of  late summer 2007. August of that year is when we first started to see  material impact of bad subprime to those who were directly exposed the most. The market sold off sharply as mortgage companies were going bankrupt and major hedge funds were getting wiped out.  Then, just like now, there was massive insider buying on the selloff,  which I recall hit a15 year high.
The fed came in, cut rates and provided liquidity which caused the market to rebound and actually make a new high for the year! We all know what happened afterwards in the months to come. So, as you can see, the market never makes it easy for the bears especially since most bears out there using ST trading tactics which makes them either get stopped out on the rallies for losses or cover far too early on the declines.

I've been LT bullish since the summer of 2009 and I turned ST bearish this summer expecting a consolidation with mild to moderate downside and exited positions substantially accordingly.  At the time I thought I was playing a dangerous game doing this because I was trying to avoid ST weakness in the context of what I still believed was a LT uptrend and when you do that you run the high risk of being left of the side lines as the market goes up without out you. Lucky for me the prudence payed off. As things have been unfolding I find myself becoming more bearish for the intermediate term (2-6 months) and perhaps long term. Economic fundamentals are rolling over while policy makers are making mistakes (in my view). The similarities between subprime housing and subprime Europe are quite eerie. You might be saying "what about all of the talk you were saying about how skeptical and pessimistic people were througout the bull market which meant it still had a ways to go?" Well, all I can say is that sentiment is only one aspect of the equation and it has it's limitations. During the bull market we had negative sentiment in the context of improving fundamentals (earnings and credit conditions) - that's when contrary theory works best. But when you have pessimism in the context of deteriorating fundamentals it doesn't work nearly as well because pessimism is justified....at best it can result in temporary rallies when it gets acute.

The bottom line is that I believe the foundation for a bull market advance is no longer there. I wouldn't call myself a full fledged bear yet but I'm on their side in the intermediate term. In the ST, it wouldn't surprise me to see the market go higher still because bears have been too aggressive betting against the market,  but I don't say that with the confidence I had last week when bears were piling in because the market was ST oversold wheres now it's not.