Quick Take On The Market This Morning
As you probably know, futures are pointing to a rough day for the bulls today. Dow futures are -300, S&P -40. SKF is already up 10 bucks in pre-market trading. A compound effect off of weak retail sales, no auto bailout, and the hedge fund scam caused the waterfall decline. For those of us who have been steadfastly bearish for the past two weeks, today is sweet sweet vindication. The most important lesson is in all the myths we saw shattered:
1. December is always an up month.
2. The bear market is over. New bull is here.
This kind of violence is unprecedented in bull markets. Bull markets are quiet and calm with gradual moves; bear markets feature violent whipsaws that shake everyone out of their positions and beliefs.
3. Santa is coming
News trumps historical patterns. While the traditional market timing suggests that we would have been up this week and into Christmas, the torrent of bad news finally overwhelmed the bulls' best wishes. There is only so many disasters one can take before you finally throw in the towel. Thursday's news broke the camel's back.
4. Investing with the crowd is safe
A lot of people, nearly everyone I know in fact, was long the market going into Christmas. This is especially remarkable in that I try to mostly hang out with bears, as bears have been correct about the market for the past two years, and I like validating views with people who have high accuracy. That said, the bears turned bullish the week before Thanksgiving. Even after a 20% rally, the bears stayed temporarily bullish through Christmas. Result: no short covering yesterday into close or at all overnight; as there are no bears, there is no one to cover their positions and buy stock as prices decline. Plus bears hate losing money as the market drops, so they dump their positions in a heartbeat as the market declines adding fuel to the fire. When you see a lot of bears turn bullish, you need to GET OUT OF STOCKS FAST! The closing of the all-short hedge fund was a good tip off that too much bullishness had developed.
Bears, enjoy today, we've earned it. I made 800 CAPS points yesterday, with my preponderance of ultrashort picks, I'm hoping for another 800 today.