Ever since the market reversal bottom of early October, I have been bullish and looking for the S&P to continue its rally to 1,300 and higher.
This was a fundamental view about the US economy and earnings as well as a technical and “behavioral” view of markets.
I wrote many blog pieces about how the rally would feed on the fear of bears and off the doubt of timid money on the sidelines. One piece was titled, “Who’s Under-Invested When Europe Matters Less?”
Well, as irony would have it, this morning I felt conspicuously under-invested as the market made what appears to be a confirmation of the bullish surge we got on the first trading day of the new year.
You can see my recent article “Small Caps Lag, For Now” to get a flavor for how I was playing the Russell 2000 to catch up to big caps. That’s happening today as the RUT is finally making an attack on its 200-day moving average and leading the Dow in percentage gains by more than 2-to-1.
This is the first time since the August meltdown it has even touched this long-term trend marker! Unfortunately, I was stopped out of my RUT positions in last week’s sleepy market. Behavioral finance will have to coin a new diagnosis for my self-sabotage… maybe “narcoleptic trading.”
In any case, what do you believe about markets and investor irrationality, or the lack of it? Do you believe as I do that some of the best opportunities are in contrarian plays, anticipating the herd, and buying their fear? Or is this type of strategy too unpredictable and unreliable in your view?
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