Still not out of the woods

From what I've been reading on the blogs I can tell this market has been hurting traders. If and I stress if, we are at the "endgame" and a big bear market is upon us, Mr. Market is preparing the groundwork to allow for a sudden and large slide to take place. He is doing so by whipsawing the bears into an oblivion while conditioning them to cover any profitable short positions quickly before they get taken away in a blink of an eye. That's what happened in the first half of this year as well which set the stage for the big drop in late July early August. Bears were conditioned to not "go for the kill" because anytime they did that it was they who got killed, and so they covered position far too early and missed out on the large portion of the crash. The same type of conditioning could very well be taking place right now if Mr. Market is planning on sending the market back to the October lows or beyond. He can only do so when there's little company.

The market is still broken behaving as it does when bear market conditions are in place. In my view, whether the market is going up or not and by how much,  is not the sole determiner of what constitutes a bear or bull market....it's the way it goes up or down that gives one a better sense in distingushing a correction from a change in trend.  Mechanical trend following systems make no such distinctions as they are based purley on price levels and moving averages.  That to me is like agreeing to go out with a girl only knowing that she has nice measurements. What about her face, her skin, her age, her personality, her intelligence?

The way this market has been behaving on the upside since any of the rally attempts made off of IT lows, namely the early August and October lows, suggested to me that they are not sustainable. They smack of short covering panics and squeezes. It does not matter to me how high the market goes...if it continues to go up erratically with high volatility like what we've been seeing lately, I will continue to be skeptical. That doesn't necessarily mean I'm going to bet against it....I won't unless I see enough weak handed investors/traders embrace the rally while at the same time a lot of bears throw in the towel. I've been around this game long enough to know that the market will do whatever it takes to squeeze every last weak bear into submission while sucking in longs. The bear market rally from  late September 2001 to March 2002 is a perfect example of how long Mr. Market can keep the balls in the air before pulling the rug right from underneath everyone.

Friday's Euro zone meeting was essentially a dud. No definitive and bold action was made to stem the crisis.  At best it was a baby step. The market had sold off sharply the day before and then rallied back to recover all the losses the day after. Bears are pulling their hair out as to how this could be. The reason is probably because there wasn't enough longs to milk while at the same time there were plenty of bears still remaining who figured that the euro zone meeting hype was going to be sold. Thursday revealed that as per NAAIM active managers only had 35% exposed to the long side, no net inflows into equities during the preceding 14 days and AAII sentiment showed a neutral 1.1 bulls vs bears. That to me suggested there wasn't enough suckers for the bears to capitalize on and in the end it was them who were the suckers as they trampled over each other running to the exits.  Compare these numbers  to the latest ST peak in early November when the numbers which were respectively 54%, 1.8 bulls vs bears and about $15 billion of inflows - these number weren't really that extreme either (which is why I didn't pull the trigger on a bear bet) but they were a bit on the high side.

Until I see a strong edge I am going to continue to be patient and just simply watch the action. It's been agonizing doing so for such a long time but when I took at the chart and look at the meat grinder that is this market, for the most part I believe I have made the correct decision. I am still willing though to make some buys in individual names but they gotta be really ripe for the pickings and I'm not going to commit large. Until I'm can feel bullish again about the trend in the general market I can't justify being aggressive long stocks no matter how appealing some of them may be. On the bear side, no matter how skeptical I am about a rally, I will not bet against it if I feel such a trade is "crowded" for I know Mr. Market can squeeze and squeeze and squeeze the bears into submission. In this type of market, doing less is doing more.