I admit to being among the above. Thankfully, I have refrained from making overly bearish bets without the confirmation I need and being disciplined with stop losses. I have also eased the pain by taking some fliers on momentum stocks verging on breakouts. I've heard a number of stories from bears who haven't been so lucky.
The scenario reminds me of the August to October period of '07. Those who had been screaming about the housing bubble and subprime mortgages were proven correct in a mini panic with the market dropping from 1555 to 1370 between mid July and mid August. But the Federal Reserve began cutting interest rates and this was enough to convince nearly everyone that the worst was behind them. The market wound higher over the next two months on extremely light volume - even surpassing its July highs. Divergences were plain to see. Financials were lagging badly. Overall breadth and volume were weak. But most brushed this aside - "mere growing pains," they said.
I hear the same comments today from those who were very cautious in spring and skeptical in the summer. Autumn has come and they are bullish. I notice that my trading account is sporting its largest net long position in a long time - so I am no different. Many other commentators are falling over themselves to make the most bullish short term projections. 1100, 1200, 1350 by year-end. Even the bears, myself included, refuse to suggest that it is impossible. If a 50% rally was possible on very little fundamental improvement, what's another 20 or 30%? I hear "fundamentals don't matter in a market dominated by machine traders." Those who proposed that people "buy low and sell high" are suggesting they again "buy high and sell higher."
The driver behind it all, as I have maintained all along is mood and risk appetite. "Performance anxiety" is a term that explains the phenomenon well for money managers. If they want to be sitting at their desk in January, they better damn well make sure they buy. Anything.
Jeff Cooper of Minyanville writes today:
I just got off the phone from one of the smartest hedge fund managers I know (who went out on his own after a stint with one of the legends in the industry).
Jeff: "What are the folks you respect saying here?"
Hedgie: "Everyone of them who are smart enough to be long are qualifying their position by saying, 'We're long but there is nothing fundamentally that justifies it'"
Jeff: "In other words, they all feel they are skating on thin ice, but it's recreational and they all feel they'll be smart enough to be off the ice if it cracks?"
Hedgie: "Last time I checked, when ice just cracks, there is no warning."
I had thought that the rally would end on a whimper; slowly rolling over and accelerating thereafter. But the unrelenting bullishness of Wall Street is setting up for an epic failure. It is a game of musical chairs. Only instead of dancing to music, Wall Street is having a bonfire with the chairs, dancing naked around it and chanting to the theme song from Mad Money.
There will be no sitting.
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