First off, if you haven't read yesterday's post, please do. The comments in it are really fantastic. The community we've got going here is just marvelous; thank you!
Second, if you haven't checked out my Alternate Investment Fund survey, please do. This will be the second-to-last time I'll mention it. I'll link to it once more next week, and then I'll shut up about it permanently. This survey is only intended for accredited investors who might have an interest in a fund strictly based on technical analysis, so otherwise you should ignore it.
Third, I've often heard it said that the market likes to prove the most people wrong. I was thinking to myself, what scenario could play out in the weeks ahead that would tick off the most people? I think something like this:
What I've scribbled out above is an S&P which free-falls again to March's lows (plus or minus a little bit). How would the different camps react to this?
- The bears would, of course, be delighted at first, but here's the clincher – – I think the bears have been so battered for the past 7 weeks, that the moment the S&P gets anywhere close to the 780-800 range, they're going to close out everything and engage in a big group hug. 780 is the number everyone is talking about. If the market simply keeps falling, the bears are going to be furious (and feel mighty cheated), since the easy and obvious take-profits point didn't matter much. My point is that the bears will leave almost all the potential profits on the table.
- The bulls would be equally furious, too, because all their easy profits from the past 7 weeks – – – especially from the high-flying momentum stocks – – would go up in smoke. Their relief would come with a double-bottom, but frankly I think newer bulls would feel so betrayed by the market (again) that they would not be as enthusiastic to re-enter.
I find myself engaging more and more in these "what-if" scenarios, since I think it's valuable not to get married to one prospective move but instead massage your mind into being prepared for various eventualities and your corresponding strategy therein.
