December 27 2010 Stock Market Update

I realized that I had failed to post that I had closed out my short position from mid-December with a small loss. Did that about a week ago but with the extreme sentiment readings once again elevated I have again taken a short position.

This is the perfect bear market setup: bulls are now investing their egoes in a climbing stock market and will likely buy into any dips for some time. We will know the market is ready to bounce a bit when they become angry and start blaming shorts for bringing the market down, which means they have finally exited their positions.

I consider a possibilty of the bull run extending from here but it will take a clear breakout above 11,782 for me to get behind that. Remember, I called the upside out of the March 2009 lows at 11,000 as early as April of that year. If that call was more than just luck the secular bear market should kick back in to the downside and begin to frustrate the bulls just as the past 20 months has frustrated the bears.

This is what secular bear markets do.

--Fred

Patience...

Once again I remind myself that patience is a virtue. The financial community is talking themselves into a higher market but only the market will tell us if that will happen.

I predict that the market will fail to break through the important 11,782 level, to any great extent, and will then proceed to eat away at bullish sentiment over the course of 2011 with completely unexpected action that will keep people hopeful and in the market, waiting for the next big up move. The rally out of the March 2009 lows was just a big setup that will be the cause of much more wealth destroyed than created. That's what secular bear markets do.

Should the stock market break through I will certainly revise my outlook. For now it continues to eat away at the confidence of bears and only those who fully understand history, what a secular bear market is, and how massive this one is, will be able to profit.

--Fred

Inflection Point Opportunity

AT this point we are approaching a point of what I consider extreme resistance but with little support and I have taken a short position via SDS.

The resistance comes from the August 2008 high of 11,782 on the DJIA. All gaps have been closed at this point and market sentiment is at extreme levels so the opportunity here is great. A close above the 11,782 level would almost certainly cause me to cover this position.

--Fred

Hans Rosling's Economic History of 200 Countries - The Joy of Stats

An informative visual (video) from Hans Rosling about the economic progress made during the past 200 years.



...thanks, Hans.

--Fred

Out of The Market

I have exited all my positions just prior to the close today. The reports that the U.S. Government is going to bailout Europe did it.

The constant meddling and bubble blowing by our government, against the wishes of the people they are supposed to serve makes it clear that it is impossible to trade this market. Yes, anyone with a brain knows where it will end up but I wish to have something left when we hit bottom.

--Fred