IS 300 POINTS ENOUGH TO COAX THE BEARS BACK INTO THEIR DENS?
The velocity of the lift up over the past week should be of concern to any current and/or aspiring bears. While bear market rallies are often times ferocious in their ability to run over short sellers and cause those sitting in cash to scramble in an effort to gain exposure, they also have a tendency to last longer than most would expect.
The market, in its infinite wisdom, knows that it is not going to change the record amounts of bearishness we are seeing here in one weeks time. The market also, in its infinite wisdom, knows that bears will continue to take shots regardless of how far up we go.
The issue is of duration. It is not velocity that changes the minds and emotions of market participants. It is duration. A sustained rally is what changes minds. A sustained rally causes people to forget about the past ills and embrace a more hopeful future. The wounds after just one week are still very raw.
So now market participants must answer the most important question of all: Why then has the market rallied up so far in such a short amount of time knowing that bears are going to continue taking shots?
It has more to do with future surprises than any other factor. The markets are preparing to take the most unexpected course of all. That course is a rendezvous with the upside that will perhaps even surprise those who are intermediate-term bullish, myself included.
The fundamentals will become apparent in hindsight. I have not experienced one market bottom in nearly two decades of playing in this sandbox that has had a fundamental reason behind its move out of the gate. The fundamental reasoning shows up many months after. If you are to wait for the bell to ring, you will be getting in when the opportunity for profit is questionable at best.
Today we saw the total put/call ratio on the CBOE close at 1.21 despite a 300 point + move in the Dow. This was confirmed by the commentary I saw during and after the market closed. Most of which centered around concerns over volume and attention to issues that the markets have already digested.
You could see the eagerness with which the bears attacked any weakness during the day by the ferocity with which the market kept coming back. Attention continues to be focused on protecting or profiting from the downside as opposed to profiting from the upside.
Given the seasonals, sentiment and price action, there is a high probability the worst is behind us. I will continue to look for opportunities to add to my long side exposure on weakness.
