Feb 12, 2012- Market Fatigue but Healthy Uptrends Intact

Wisdom Collected From Up Above:

1.) This morning I woke up to an email informing me that bull markets begin in years ending with the number 2 (1942, 1952, 1982, 1992, 2002, why not 2012?…..).  It is statements like these which lack any relevant context that have gotten investors in trouble time and time again.  – Robert Sinn, Sage Letters

2.) My base case is for the major indices to digest the recent move within a 2-3% range for the next few weeks while there will continue to be significant opportunities among individual names and sectors. – Robert Sinn, Sage Letters

3.) Typically, the epilogue of complacency takes place when low-priced small caps with high short interest and poor fundamentals start to go up 20% or so in a day – Ivanhoff

4.) The St50 Momentum index dropped 1.51%, reflecting natural profit taking in a good portion of the leading stocks. Ivanhoff

5.) From one side, we have all those warnings signs of an impending correction. From another, we have an increasing number of better risk-to-reward setups showing up. The most important thing here is that we are still in a “market of stocks” environment where sector rotation and individual stocks catalysts are the major driving forces. Ivanhoff

6.) Warning signs are creeping into the market ever so slowly — but a doji candlestick formation is not one of them.  Markets on a run like this don’t just crash, they infuriate everyone with a long and painful topping process.   – Dynamic Hedge

7.) There are a lot of people yelling at the top of their lungs that “Everyone is BULLISH.”  While I agree that sentiment is getting stretched, last time I checked sentiment can stay quite bullish during bull markets.  Don’t be bearish just because it’s cool to be a contrarian. – Dynamic Hedge

8.)    It’s okay to be prudent, just know that pullbacks will be bought aggressively.   Low quality stocks continue to perform well which is always worrisome.  As annoying as it is, the market is objectively trending higher.

9.)    Anecdotally I would say that market tops take about three times as long to to play out as bottoms.  Bottoms are emotional and irrational events.  Tops are a different kind of emotional and irrational.  Actually, the degree of irrationality depends on your perspective.  If you’re a bullish in a topping pattern it just feels like consolidation for the next leg up.  If you’re bearish during a topping pattern then the whole world can feel positively insane.  Each new reach for fresh marginal highs feels like a preposterous fraud.  If you’re bearish during a bottoming pattern each push lower feels like fresh validation on your thesis, but if you’re bullish during a bottoming pattern there is a tug-o-war between fear of the unknowns and wonderment at the ridiculous valuations and unstable minds behind the selling pressure. – Dynamic Hedge

10.)Markets are showing short term signs of fatigue but longer term trends remain firmly under control of the buyers. Mixed messages from diffferent timeframes gives us reason to treat the market with a little more caution. – Brian Shannon

(If you’re a longer term (6 months- 1 year) player, none of the corrections will matter to you.  If you’re a trader, they matter.  A small break, pullback for a moment will just result in higher lows, but still in a great uptrend. Going All-Lin needs careful prudence.)

– Faceless Trader