Amazing what a 5% drop does

"Like its 2008 All Over Again". This was the headline from one of Cramer's articles tonight. Anyone reading that headline who wasn't aware of what the market has been doing these past couple of months would have been made to believe that we were in the midst of a crash. Cramer proves my point when I say that any hint of trouble makes bulls run for the hills. And look how excited all of the bears are getting! I don't get to watch CNBC anymore but apparently good ole Robert Pretchter was featured today as he's calling for the end of the world (again). I'm not going to bother wasting too much time talking about this clown again. Anyone who's been long term bearish since 1986-1987 when the SPX was around 300 and remained stubbornly bearish during the biggest and longest bull market in history has zero credibility in my book. I don't give a shit if he called this latest crash. A broken clock is right twice a day as they say and if you listened to this guy for the past 20+ years you would be broke several times over.

All of this hoopla and for what? A 5% drop from the recent high? Even a 10% drop doesn't prove a thing for the bears. Most have been getting their asses handed to them basically since SPX 850 or thereabouts where they believed the rally was going to lose steam.

The psychology out there is fascinating. Bulls are quick to run for cover because deep down inside they still have some doubts and worry about this being just one big sucker's rally because the economy although improving is fragile (I know I have my doubts). Bears on the other hand have been holding strong in their convictions all the way up since March. I see very little in the way of humility from them after getting embarrassed and losing money for so long. Now that the market drops 5% they are jumping up and down like lunatics with a "see I told you so!" attitude. These guys are so delusional and clearly suffering from ego damage. They are celebrating that the market is down 5% after a 70% 10 months rally! If only they can see how pathetic they look.

Now look, don't get me wrong. I'm no permabull. Back in late 2000 I was as bearish as they came....my dad would call me Mr. Negative. That's when being bearish was unpopular and uncomfortable. I would bash retail permabulls like I've been bashing the permabears of today. It was tough for anyone to imagine after the 1990s that there could be a big bear market. Every crisis in the 1990s was dealt with swiftly and with little pain relatively speaking. People were conditioned to buy on the dip. Now we've come full circle. Now, every uncertainty that comes around makes it easy for people to worry about another 2008-like debacle. It seems like we will never get out of his hole. The thought of the economy returning to consistent and steady job growth takes a big leap of faith doesn't it? Buy and hold is clearly dead. The consensus is that you would be an idiot to do such a thing....Full circle indeed.

Anyhow, enough of the philosophical ranting and on to the market action. We got a weak bounce followed by a retest of the lows today. Could this be enough to put in the bottom? Well...I'm still not getting the "all in" buy signal. However, the market is certainly oversold now to get a really nice bounce.

On the bullish side of the ledger, the market is very ST oversold...right around where current ST bottoms have been seen.






In addition, the put/call ratio continues to climb, bonds yields are dropping and a couple of rydex indicators (but not all) are giving the green light.

On the bearish side of the ledger, market action is weak. We couldn't even get much of a bounce despite already oversold conditions so far. Also, although the VIX spiked quite a bit recently indicating a surge if fear, it collapsed very quickly on Tuesday....too quickly even though the market ended the day in the red. That's a sign of complacency to me.

I think we are in the situation where it's too risky to short and too risky to go long in the ST. I still think the market will need to do a bit of base building and I'm still looking for a clear cut buy signal to get interested in playing the indices for a trade. Until then I will continue to do research on stocks which are showing nice charts "dancing to their own tune". Drops like this in the market provide a good test to see how resilient and non-market correlated your stocks are. If they can hold up well it's a sign of strength. Fortunately for me that has been the case for my portfolio as a whole but I realize that this can change on a dime and if we get another 2008 like panic all bets are off.