WHY JANUARY TOPS ARE A RARITY
January tops following a bullish year in the past year are not a common occurrence. If the market wants to begin a topping process, it will typically retest and exceed a January top in February or March and then begin the painful period of correction.
This market is no different as human psychology and pressure upon fund managers to perform is no different, regardless of the period of time.
When the markets have been bullish in the past year, as they were in 2010, the pressure of performing begins to build on the vast number of fund managers who were left behind. When they see that January is bringing much of the same bullish performance from the markets...they simply start pressing the buy button indiscriminately.
The same goes for short sellers who underperformed in the year prior. They are holding out hope that the next year will be different. However, when they see that the first month of the year is much the same as the previous 12 months...they become panicked and begin buying in their shorts.
It's a classic final capitulation type scenario that tends to last for a majority of the month. Your job as an investor is to not fall for it and recognize exactly what is happening.
Over the weekend, I will be reviewing all the signs that point to the fact that this is not the time or the place to be dancing naked in the streets with a load of high-beta stocks on your back. It is time to pull in the horns a bit and allow the markets to recalibrate the bids and offers...as things are getting a bit out of whack.
