Thursday, February 23, 2017

SPX and RUT and Some Random Thoughts for Bears

It goes without saying that markets are out of our direct personal control.  Our only way to profit from them is thus to determine which direction they're going (or about to go, if nearing a reversal) and align ourselves with that.  In a way, our trading success can be a direct reflection of our ability to "go with the flow."

This may be one reason that bears have such a hard time accepting bull markets.  I believe that bears, by nature, are rebels.  After all, they've rejected the "everything is awesome" paradigm and the basic Keynesian ideal that consumption is the American Way, so they're already further out to the fringes than the average American (many of whom don't even know what short-selling is, much less attempt it).

Bears realize they're not part of the majority, and I think they like it that way -- but the emotional attachment to being, as Yogi Bear would say, "smarter than the average bull" can cause them to instinctively want to buck any popular trend that isn't "down."  The problem is that emotional attachments, especially to things like our fundamental belief systems, get taken up and carried by the ego.  And that can lead to a sort of dogmatic approach to things.  Basically, once the ego gets involved in anything, there's going to be trouble.  At least, that's my belief.  The ego is unavoidably responsible for mediating certain things in this life, but it's often a horrible manager and, if unchecked, it quickly turns into a brutal and tyrannical dictator.

So, if you're of the bearish persuasion and have struggled with this rally, then it might be worth examining whether you've been taking action based on the market's prevailing trend, or on some need to be smarter than the market and, in a way, attempting to beat the odds.  If it is the latter, then that will not be readily apparent to you.  That's how the ego gets away with stuff -- since it manages our perceptions, it is fully capable of hiding whatever it wants, including our true motivations, for long periods of time. 

And of course even CONSIDERING such a thought as the one posted above will be heartily distasteful to the ego, so the knee-jerk reaction will be, "No way!  Not me.  Not at all!  Definitely not."  And then, even if it ultimately convicts itself, the ego will immediately begin searching for someone or something else to blame.  If the ego is allowed to get away with such tactics, we'll learn absolutely nothing from our mistakes and will keep repeating them, literally for the rest of our lives -- until such a time as we do finally learn.  Nobody said life was easy.

Don't know if that's of any value to anyone -- just a few random thoughts I had today.

So, on the bright side for bears, the Dow's recent streak of 9 record closes can be viewed as training in "going with the flow," since we've known (or believed we knew, anyway) for some time that the larger trend would remain up for the foreseeable future.  That certainly hasn't stopped people from bucking the trend and attempting to short against it, myself included (though mercifully only once in the past couple weeks, and with a very tight stop of about 2 ES points).

Near-term, we appear to have at least one more leg up to unwind (possibly more, if this wave subdivides):

RUT is also closing in on its upside target from mid-November:

In conclusion, SPX and RUT are both within spitting distance of their November targets, at which point things may actually get a bit more difficult for a while.  Trade safe.

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