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Four Bull Views on the Market...and Four Bear Views


It's all in how you look at it.

Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial).


That cotton trade was almost the deal breaker for me. It was at that point that I said, "Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?"

-- Paul Tudor Jones

Another start of the week, another stalemate! Here are some arguments for a move higher:
  1. Many sentiment indicators are oversold and this is a contrarian indicator, signifying a higher market bent. (The recent tepid move has eroded some of the benefits of being oversold, but overall the intermediate term indicators are oversold.)
  1. Most averages are at important technical support levels. I shared a few days ago how S&P was balancing at its 200 day EMA, and it found support at that crucial level.
  1. The housing index has enjoyed spectacular gains during the last week. It's important to pay attention to the leaders of the recent move from October.
  1. Market reacts the least to the outcomes it expects the most. Could it be that the omniscient market has already seen ahead of the feared events and shrugged?
On the other hand, the same situation can be viewed in a negative light:
  1. This decline has been extremely contained, especially when put in context of underlying emotions. As I shared on May 23, there has been no serious selling day leading to capitulation in this entire decline.
  1. When a market falls and is unable to rally hard despite oversold conditions, it can be construed as a sign of further decline to come.
  1. Some of the oversold market condition has been "used up" since the market has rallied for the past few days. Some of the indexes have actually run right into resistance. See the below chart of Russell 2000 (^RUT), for instance.

    Click to enlarge
  1. The volume on the ascend has been nothing remarkable.
The way I see it, the market remains in a muddled state and seems to have no edge on either side. This is the same pattern of a relief bounce that occurred last Monday. It's hard to make logical decisions in the face of emotional responses stemming from possible binary events. Thus, I am keeping commitment small in terms of size and time horizon.
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No positions in stocks mentioned.

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