Re:<<Wouldn't you think that in such a situation, confounding the majority would mean taking a good dive in the near future when many, like you, announce the 'new' bull market? >>
Hi M_E. Your point is well taken. The market has been overbought for quite a while. More, in fact, than I can recall any time in the last three years. I have been expecting a correction for some time. What has impressed me the most is the significant positive breadth. Interestingly, we have had a number of days when the market opened negatively and by the end of the day it has recovered and finishes with two or three to one positive ratio.
What is going to be important, is how the market corrects. Will corrections be limited to three or four days and be supported where previously there was resistance or will the support areas be sliced like the proverbial hot knife through butter, a la the last three years.
You ask "if the majority is now bullish wouldn't that lay the ground work for a decline." That logic trumps mine but it doesn't allow for a three year bear market or a multi year bull market either. Yet we know these things happen.
When I suggest that the market confounds the majority, that isn't inconsistent with what is happening right now. First, I doubt that the majority of investors are long term bullish. I doubt there are that many who are certain of anything, even what happens the next couple days. The action of the market, in fact, belies economic circumstances. It doesn't, on the other hand, conflict with money supply, interest rates or even the normalized yield curve.
Until last month, money flows have trickled into equities while flooding into fixed instruments. Considering where interest rates are, this doesn't make a lot of sense. It is interesting to note, however, that despite the strong rally in equities, bonds have yet to slide. That suggests, as a minimum that lifting equities hasn't required selling from their "alter egos". The low volume is telling also. It isn't so much a surge to buy as a resistance to sell that seems to be moving the market higher. That would seem consistent to me with bull market conditions.
Another thing that would be consistent with a bull market would be sharp but contained corrections. If we are finally going to correct for a few days, it will be important to note if the money starts to rotate into other stocks, the breadth holds up and, as mentioned, support is respected.
My point to Zeev was and continues to be that I don't think this market is acting like a bear rally. The volume is low, the breadth is good and the declines are shallow. The only way I know to deal with this is to keep an open mind and let the market suggest where it is going.
Mike
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