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