One more piece of bearishness which may help fuel this continued creeping rally higher.
Markets climb a wall of worry. All I can say is that Richard Russell may be correct. I don’t have a crystal ball. I do know that I would look for a correction to the 1/2 way point of the 10 month 4,000 point rally in the dow. I’ve been writing that for about 6 weeks now. However, on the bullish tone, we are contiuing to have newsletter writers and such call for 1) a double dip, or 2) a major meltdown to last March’s lows. Richard Russell is recomending zero stocks in your alloction.
I respect every analyst who makes a living selling a newsletter. I would wonder, however, if Mr. Russell has now bought those puts. If he’s right, he would get a 5 to 1 payoff, minimum on his investment. If he got short and rode just 2 mini dow for 3500 points, he’d make 35000. Go a ahead and get short and look for the home run then. If he is right, a 20,000 account could yield a handsome profit.
If however, he is wrong, that would be a bad thing if you were short and we rallied 900 points.
My reasoning for being cautiously bullish is because there is so much bad news out there, with greece and the EU, the rising dollar, etc. There is a ton of cash sitting on the sidelines still. We have yet to get through the first quarter of 2010. If we get through March or April with not significant flush down to the 8600 level, which is the 1/2 way back point of the 10 month upmove…. we could have a rally fueld by money which has been sitting on the sidelines for too long, and sooner or later those money managers are going to have to start buying again. That is their job, to buy stocks and trade stocks and make money in stocks.
The sheer force of these sidelined investors jumping back into the pool could create a mini bull tsunami. How long the tsunami lasts is anyone’s guess.
All I know is that after 20 years, I know that when Barrons and other news services are firmly embraced in the den with the bears, generally they are wrong. Sooner or later, they will pull the trigger on the long side. That action could easily spike us up to the key 11,000 level. And it would be a perfect scenario, simply because no one is expecting it. Generally, markets punish popular opinion. That is one of their major functions, I believe.
So, if everyone is bearish, and waiting, my leanings continue to be on the bullish side.
New money pouring into the market will raise the tide, and the shorts in the market will fuel the rise if they get squeezed and have to puke their positions.
That is all.
Good Trading
