Tuesday was a great day in that the dip wasn’t bought in the first hour of trading. In fact, we closed near the lows of the day but I’d hardly call that a victory for the bears. The bears have been front-running a market top for months now and, in my opinion, have become frustrated and stunned. Yet they kindly show up and take the other side of the trade on a daily basis and that’s a beautiful thing.
Days like yesterday bring the bears out of hibernation and their thinking is validated. The last time (1/28/11) those in the bearish camp were rewarded was rather ephemeral but something feels different about yesterday. What makes it different I can’t define but the market has my undivided attention over the next two days. Ideally, as a seller of premium on the indices, I’d like to see a bounce but not a full recovery to new highs and then another -1% to -2% day. That would shake a few of the weak longs, no question, and get the bears salivating.
One thing I do know is that dip buyers will need to have their assets handed to them more than once. They’ve been rewarded countless times over the last 6 months and many who’ve been under-invested have been looking for an entry. It would take a few more -2% days before the dip buyers shy away and reassess the strategy that has been so easy and treated them so good of late. I say bring on the indecision and volatility.