Tide Might Be Turning Back Towards Bears

Remember all those weeks on end where all news was good news? Financials take huge financial writeoffs? Great news! Retailers same store sales bad? Great news! Homebuilders can't sell anything? Great news!

Each bad news meant either the 'problem was contained' or the 'Fed will cut more'. While I still contend the Fed will cut more, I have vehemently disagreed the issues are anywhere near contained. If it weren't for global growth in fact, I'd be very scared of this market as there would be nowhere to turn as a (relatively) safe haven.

With that said, we might be seeing the reverse begin to happen - bad news actually means... bad news. And good news is sold. I wrote last Thursday (please read this if you are new here) that the intraday reversal could be a hit to psychology and we might be starting to see that this week. For the first time in many weeks hot stocks (outside the Chinese) you cannot just buy and expect a new 52 week high the next day. That's a change because it is not "so easy" anymore to be a bull (or ignorant of the economic issues that are very real).

Technically the major averages are all above important support (50 day moving average) but have now tailed down to their 20 day moving average so the next few % are going to be important. If these averages hold and dip buyers come in, we should be ok near term, but if we break those support levels, we could have some serious falls.

The market loves to do what most people least expect it to do. Back in September, many (including me) were pointing to how September was historically the worst month and we had a SLEW of bad economic news - so downside could be expected. Well the market ignored all bad news and rallied for weeks on end - working against the assumptions of most people. As each week passed, people came in from the sideline (however reluctantly) and joined the 'party'. Now the past 2 weeks, even long time bears were throwing in the towel as they were incredulous that the market could go up daily in the face of an avalanche of deteriorating economic news. So wouldn't it just fit the theory best that when 'everyone' finally got in... the market falls?

Again, let's see how it plays out but for now I remain cautious and I reversed my sales of short ETFs I did yesterday and bought them back as insurance. I wrote yesterday

And because I hear helicopters off in the distance and Intel and IBM report tonight and since both have heavy international exposure I expect nice results and we can forgot about all these issues and take the market back up, so I am going to cut back my short ETFs a bit as well.

Right now logic would dictate we go down, but logic vs 'invisible hand' makes me wonder just how much we 'can' go down.

So I was correct on the results, and initial reaction - but the market is not responding well. This is essentially 'insurance' for me; if the market really takes a hit, so will the fund but my solid cash position and some of these short ETFs help to buffer the fall. For example the first 2 days of this week, the fund was up 0.20% while the indexes I track were down 1.5% so they worked great this week (along with my long positions STILL working, even in the face of a weaker market).

Last, it is too early to call anything but this is the first time since August I truly see selling on bad news - so this is a change to respect if it continues. Tomorrow will be a VERY interesting day because many stocks that either effect market psychology (i.e. Google (GOOG)) or the fund will report. I will have an entry later in the day outlining what I will be looking at tomorrow.