I was out and about, and I was listening to CNBC on the Sirius Radio, and the panic in the air over a three quarter of a percent down day is palpable. The fellow with a British accent is in an absolute tizzy, and the stream of guests are spewing forth the usual nonsense and market axioms of why you should be bullish right now — investors are on the sidelines, the US is decoupling, the sovereign crisis in Europe is baked into prices just to name a few. My point here isn’t to discuss the the merits of being bullish or bearish, but seriously folks, a 3-5% pullback in the SP500 would be really healthy for a market that has come a long way in a short time on very low volume. If you are bullish, you should be cheering for a pullback.
One of the hallmarks of a market top is market action that never clears itself of the weak hands. If the dips are short in both depth and duration, then the market can’t go higher. And currently, these dips are being bought by investors late to the party who are feeling like they are missing out. They are the weak hands and the market can’t keep bailing them out by making marginal new highs every 3 days if it expects to go higher.
So we will leave it to the talking heads on CNBC, who can’t stand more than a percentage point loss to their portfolios before the anxiety sets in, to continually work against their own self interests. They should be cheering for further losses, and this will be the only way that the market can work itself higher.