The bears finally gave it a try today, but the best they could manage was some mixed action. The indices were slightly red, and breadth was flat on the Nasdaq. Oil was the major drag today, along with semiconductors. Some of the momentum stocks suffered a bout of aggressive profit-taking, but then stocks like GOOG, AAPL and GS were solid.
I don't think anyone seriously questions the fact that the market is technically extended. It is painfully obvious, especially to those who have been trying to find some good entry points. The big question is how we work off this overbought condition. Either we can sell off and pull back sharply, or we can churn for a while and go nowhere. The bears and the underinvested bulls will be rooting for lower prices, but with the huge supply of dip-buyers out there, the more likely scenario is that we simply run in place for a while.
The action today was a good illustration of how the market is likely to stay very sticky to the upside despite many good reasons for some profit-taking and pullbacks. There is still a plentiful supply of would-be buyers who have had it beaten into them recently that buying any and all dips is the way to go. Until the Market Monster catches them by surprise and turns on that thinking, they are going to be extremely aggressive in buying pullbacks.
The fundamental bearish arguments against this market continue to sound quite compelling, but the technical action is still supportive of the bulls. The indices definitely need a rest, but that isn't a sufficient reason to be aggressively bearish....