Rev Shark:
Cautious, but Not Doing Nothing
9/12/2005 8:41 AM EDT
"All you need is ignorance and confidence and the success is sure."
-- Mark Twain
Since Hurricane Katrina hit two weeks ago the market has been confidently moving higher. Some would say this could only happen because of the gross ignorance of the investing masses who are ignoring the economic fallout of that event: high oil prices, inflationary pressures, a slowing housing market, seasonality and a mediocre economy.
Is this market blindfolded and slowly walking the plank to a certain plunge? Is this recent strength merely the market's perverse way of increasing the supply of bulls so that it can punish the most people possible by suddenly reversing course?
The irony of the market is that there are so many people who harbor these concerns that it supplies the underpinnings to keep the market moving higher. When skepticism and caution is high, there is buying power on the sidelines that continues to support prices.
It does seem that there is an increasing acceptance of the proposition that if the market doesn't go down on all of the bad news that is out there then we have to expect it to keep going higher. This market has handled everything thrown at it with style and grace and it would seem that there is no reason to think that won't last.
As always there are good macro arguments for both the bulls and bears but if you block out all of the noise and just look at the charts of the major indices, the benefit of the doubt definitely goes to the bulls. The indices are in good shape technically with uptrends intact and upside momentum in place. However, they are becoming overbought and starting to hit resistance levels.
Most notably, the S&P 500 is heading for the highs it hit in July and August at around 1245. That level is on the screens of all technicians and is going to produce some reactions if it is hit.
I've had a high level of caution recently and will continue to maintain that posture. That doesn't mean I stand aside and do nothing; it means I keep time frames short, stops very tight and am mentally prepared to sell and/or short at the first sign of trouble.
We have some merger-and-acquisition news on the tape this morning, oil and gold are down a bit, European markets are mixed and Asia is strong on the election results in Japan.
Gary B. Smith:
